Japan Reduces Virtual Asset Tax Rate from 55% to 20%: Key Points Summary

BTC (Bitcoin) is a name many may have heard, but many do not truly understand what it is.

In July, a significant legal amendment was made to the regulations surrounding virtual assets (digital assets). The legal treatment has changed, and as a result, the tax system is also set to change.

The Financial Services Agency of Japan has been tracking this regulatory change since the expert meetings began in the summer of 2025, and today we will explain what is changing and how.

What are Digital Assets?

Digital assets refer to digital currencies traded on the internet.

Unlike yen or dollars, which are issued by governments, they are established by computers around the world sharing records. A prominent example is Bitcoin, which emerged in 2009.

In the past, the term "virtual currency" was common, but in 2020, the official legal term was changed to "digital assets."

In Japan, digital assets have been viewed as a "means of payment" until now. They have been treated as a way to pay for goods. Therefore, they have been regulated under the Payment Services Act, similar to electronic money.

How Does the Amendment Treat Digital Assets?

However, in reality, digital assets have been used more as investment vehicles rather than for payments. People buy them expecting price increases and sell them when prices rise, similar to stocks.

In response to this reality, the government has decided to change the status of digital assets.

On July 15, an amendment was passed that treats digital assets as "financial products." This means they will be governed under the Financial Instruments and Exchange Act, which regulates transactions of financial products like stocks and bonds.

When treated as financial products, additional rules to protect investors will be introduced. The main points are as follows: ▶ Clear prohibition of insider trading: Trading based on undisclosed internal information will be prohibited.

▶ Obligation for issuers to disclose information: Issuers of digital assets will be required to disclose information once a year.

▶ Strengthened penalties for unregistered sellers

• Maximum imprisonment: Increased from up to 3 years to up to 10 years.

• Maximum fine: Increased from up to 3 million yen to up to 10 million yen.

The background for these strengthened penalties is that unregistered sales have already been problematic in actual cases.

In February, allegations arose that a digital asset named SANAE (Sanae Token), named after Prime Minister Sanae Takaichi, was sold without registration, leading to an investigation by the Financial Services Agency of Japan.

SANAE is a type of digital asset known as a "meme coin," which is issued based on specific individuals or topics.

Prime Minister Sanae Takaichi herself stated that neither she nor her office approved the issuance or trading of the token. The project was halted, and its price plummeted.

Finance Minister Satsuki Katayama revealed in a June response to the National Diet that three loss consultations had been received by the Financial Services Agency regarding this case. This legal amendment can be seen as establishing a system to respond to unregistered digital asset sales with heavier penalties.

Tax Rate Reduced from 55% to Approximately 20%

Many people are likely interested in the tax implications. Under the current system, profits from selling digital assets are classified as "miscellaneous income." Miscellaneous income is combined with other income, such as salary, to determine the tax rate, a structure known as "comprehensive taxation."

The more combined income one has, the higher the tax rate. The combined tax rate, including resident tax, can reach up to 55%, but this is the highest rate applied when taxable income exceeds 40 million yen.

The 55% rate does not apply to everyone. However, if one makes significant profits from digital assets, the combined income will increase, pushing them into a higher tax bracket. The more profit one makes, the heavier the corresponding tax rate.

In contrast, the tax rate on stock sale profits is consistently around 20%. This disparity in treatment has been pointed out as unfair for a long time.

Under the new system, profits from selling digital assets will also be subject to separate taxation like stocks, with a tax rate of 20.315% (15% income tax, 0.315% special income tax for reconstruction, and 5% resident tax).

The revised income tax law containing this information was already passed and promulgated on March 31.

The treatment of losses will also change. Until now, losses could not be carried over to the next year, but under the new system, they can be carried over for three years and offset against future profits.

When Will It Change?

"If the law has already passed, doesn’t that mean taxes will be lower right away?" This is a common misunderstanding.

While the law to lower the tax rate has passed, its effectiveness depends on the actual implementation of the amendment to the Financial Instruments and Exchange Act. Laws do not take effect merely by being passed; they must reach the implementation date to have effect.

This amendment is set to be implemented within one year of promulgation, so it is expected to take effect in 2027.

The new tax rate will apply to transactions conducted after January 1 of the year following the implementation date. In other words, if it is implemented in 2027, the new tax rate will apply to transactions conducted after January 1, 2028.

If one sells digital assets and makes a profit now, the tax will remain unchanged from before.

Not All Digital Asset Transactions Will Be Subject to 20%

Another point to note is that the new tax rate will not apply to all transactions.

It will only apply to specific digital assets. Generally, this refers to digital assets traded on domestic (Japanese) exchanges, but the specific delineation will be determined by detailed rules set by the government in the future.

Additionally, it must be sold through domestic digital asset trading companies such as Coincheck, SBI VC Trade, and bitFlyer.

This point is emphasized by the National Diet itself, which passed the bill. When the amendment to the Financial Instruments and Exchange Act was passed, both the House of Representatives and the House of Councillors added a "supplementary opinion" to the bill.

This is not part of the law itself but an official document conveying operational cautions to the government. Among the supplementary opinions, there is a statement indicating that the separate taxation applies only to "a portion of digital asset transactions."

Tax law expert Junya Izumi pointed out in his NADA News series that transactions on overseas exchanges, decentralized exchanges (DEX), and peer-to-peer transactions may continue to be subject to comprehensive taxation (the structure where the tax rate is determined by combining with other income).

There are also limitations on loss offsets. Loss offsets will be limited to transactions involving specific digital assets that are subject to separate taxation, and one cannot swap stock profits for digital asset losses. Even though both are subject to a 20% separate taxation, they are treated as separate categories.

Furthermore, income earned from "staking" digital assets or "mining" through computer calculations falls outside this regulation.

What to Watch Going Forward

For those holding digital assets and those considering future investments, the key point to pay attention to is the implementation date. Until the implementation date is determined, the timing for using the new tax rate will not be confirmed.

There is ongoing discussion about whether to allow the creation of exchange-traded funds (ETFs) that include digital assets in Japan, now that digital assets are treated as financial products.

Currently, creating ETFs that include digital assets domestically is not permitted in Japan because digital assets have not been treated as financial products until now. This regulatory change is seen as laying the groundwork for future approval of such ETFs. If realized, it could open up the possibility of indirectly investing in digital assets through brokerage accounts.

In Conclusion

The regulations surrounding digital assets have undergone a significant shift from being viewed as a "means of payment" to being regarded as an "investment target."

However, behind the easily understandable headline of lower tax rates lies the fact that the distinctions of applicable items and loss treatments are still in the process of being solidified. The real movement of the system is just beginning.