Japan Proposes 20% Flat Crypto Tax Rate by 2026

Japan has established itself as a pioneer in cryptocurrency regulation, with a comprehensive and proactive framework in place by 2025. The country's journey began in 2017 when it formally recognized Bitcoin as a legal payment method through the Payment Services Act (PSA). This recognition laid the groundwork for a series of regulatory developments aimed at enhancing security and facilitating the growth of the crypto market.

In March 2025, the Japanese Cabinet Minister approved a proposal to reform crypto brokerage and stablecoin laws. This reform allows cryptocurrency companies to operate as an ‘intermediary business,’ providing flexibility to stablecoin issuers to back their tokens with various types of assets. Additionally, crypto brokerage will no longer be subject to financial regulations or anti-money laundering (AML) regulations, marking a significant shift in the regulatory landscape.

The timeline of major crypto regulations in Japan highlights key milestones. In December 2024, a crypto tax reformation was proposed, shifting from a progressive rate of 55% to a flat 20% tax. This change aims to simplify the tax structure and encourage more participation in the crypto market. Other notable regulations include the Crypto Travel Rule implemented in June 2023, which mandates the inclusion of sender and receiver information for crypto transfers, and the PSA & FIEA Amendments in May 2020, which introduced new AML, cybersecurity, and security token regulations.

The Japanese government's stance on cryptocurrency in 2025 is proactive and focused on enhancing security and market integrity. Finance Minister Katsunobu Kato announced that Japan will review crypto tax by the end of June 2025, with possibilities of a new tax regime indicated. The Democratic Party’s Web3 Project Team has proposed classifying crypto under the Financial Instruments and Exchange Act (FIEA), aiming to bring crypto assets under stricter financial regulations by 2026. The government also aims to increase the cashless economy to 40% by 2025 through blockchain development, positioning Japan as a leader in the crypto space with a focus on legal registration of crypto exchanges and platforms, market integrity, investor protection, and anti-money laundering.

Crypto tax in Japan is currently treated as ‘miscellaneous income’ with a progressive income tax rate ranging from 5% to 45%, depending on the individual’s total income. Additional inhabitant tax of 10% results in a total tax rate of 15% to 55%. However, a proposal to cut crypto tax from a progressive rate of up to 55% to a flat 20% on crypto tax gains was made on March 6, 2025. If approved by the Financial Services Agency (FSA), this reclassification is expected to take effect from 2026, simplifying the tax structure and potentially boosting crypto market participation.

Obtaining a crypto license in Japan involves registering with the FSA under the Payment Services Act (PSA). Crypto exchanges and platforms must establish a local entity, typically a Kabushiki Kaisha, with a minimum capital of over 10 million yen. A physical office in Japan and a Japanese bank account are mandatory, along with strict adherence to AML and CFT regulations. This regulatory framework ensures that crypto companies operate within a secure and transparent environment, protecting investors and maintaining market integrity.

Crypto adoption in Japan has seen a positive increase, with a penetration rate projected to be 14.70% in 2025 and expected to reach 15.26% by 2026. The number of crypto users in Japan is anticipated to increase to 18.69 million by 2026, driven by the country's modern regulatory framework and proactive approach to crypto adoption. The current revenue in the crypto market is expected to reach US$2.0 billion in 2025, with an anticipated growth rate of 3.44% resulting in a total amount of US$2.0 billion by 2026.

In conclusion, Japan's regulatory framework for cryptocurrency has shown positive results with solid earnings and enhanced protection measures for investors. The country's proactive approach to crypto regulation, coupled with its focus on market integrity and investor protection, positions Japan as a leader in the global crypto landscape. As of 2025, Japan continues to refine its regulatory framework, with several new proposals awaiting review and expected to take effect from 2026. This ongoing development reflects Japan's commitment to fostering a secure and thriving crypto market.