Japan has proposed a flat tax rate of 20% on crypto profits

Japan has proposed a flat tax rate of 20% on crypto profits, which is comparable to the tax applied to investment trusts and equities. Crypto gains are currently subject to a progressive taxation system that can go as high as 55%, discouraging domestic trading among Japanese investors.

The proposal places crypto profits under a different taxation framework, where specific income-generating streams are treated independently from business earnings or wages. The 20% is split between regional authorities and the government at 5% (as resident tax) and 15% (as income tax), respectively. These changes are expected to be included in the finalized 2026 tax reform package, which is scheduled for release in late December.

Meanwhile, local media reports suggest that the Japanese government plans to press forward with these measures to encourage investment in the equity markets. It also plans to make minors eligible for tax-free investments.

Japan’s FSA announces regulatory review

The Japanese Financial Services Agency (FSA) has announced preparations for regulatory changes in line with the proposed tax cut on crypto gains. The changes will treat crypto as a financial product under the same laws governing investment funds and stocks. 

The FSA’s proposal covers Bitcoin, Ethereum, and nearly 100 other tokens, and the planned structure will reclassify crypto under Japan’s Financial Instruments and Exchange Act, effective in 2026. Meanwhile, institutional involvement is expected to surge under the new rules.

According to the FSA, insurance firms and banks could be authorized to offer crypto products through custody arrangements or affiliated brokers. However, the authorization is subject to compliance with insider trading and securities disclosure requirements.

The FSA is also preparing a whitelist of about 150 tokens that meet its classification standards. All the assets excluded from this list will face limited access to exchanges and tighter restrictions.   

Meanwhile, Japanese exchanges could see a significant surge in domestic custody as tax incentives change. Corporate treasuries may also begin to allocate to approved tokens under clearer compliance standards and accounting, the FSA added. 

The FSA has not yet published a draft legislation or completed the token whitelist, both of which are targeted for a 2026 release. However, the agency has announced that a consultation period will precede official legislative action. 

The agency also conducted a quick tax comparison across major markets and found that the U.S. treats most tokens as property, taxing crypto profits at rates ranging from 0% to 37%, depending on the holding period. The UK applies a capital gains tax of about 20%-28% with bracket variations. Germany taxes crypto gains as income; otherwise, the holdings are exempted after a year. France also applies a 30% flat rate on crypto profits under its digital asset rules. 

Crypto reclassification removes compliance barrier for institutions

Importantly, the proposed reclassification of crypto assets will remove some compliance barriers for institutions, according to the FSA. The new rule will also establish two regulatory categories for crypto assets: approved assets and non-approved assets.

The FSA says approved assets will receive special benefits, including bank custody and similar tax treatment to stocks. The agency believes this will make it easier for institutions to sell and manage them. Non-approved assets will remain in the current, more restrictive tax category and continue to face regulatory constraints.

Meanwhile, allowing insurance firms and banks to offer crypto-related products opens up institutional allocation that is yet to be unlocked by other G7 countries. The agency also claims that cutting taxation on crypto gains from 55% to 20% is also expected to significantly impact the behavior of retail traders, according to the agency.  

The FSA also stated that inclusion in the whitelist will become a requirement for market access for token issuers. The new framework will align crypto with existing securities infrastructure for institutions. 

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