Japan Proposes 20% Flat Tax on Crypto Gains to Boost ETFs

Japan’s Financial Services Agency (FSA) has proposed a significant reclassification of cryptocurrencies, which could pave the way for the launch of crypto exchange-traded funds (ETFs) and introduce a flat 20% tax on digital asset income. The proposal, introduced on Tuesday, suggests recognizing crypto as “financial products” under the scope of the Financial Instruments and Exchange Act (FIEA), the same regulatory framework that governs securities and traditional financial products.

The proposed reclassification could also shift Japan’s current progressive tax system, which taxes crypto gains at rates up to 55%, to a uniform 20%, mirroring the treatment of stocks. That change could make crypto investing more attractive to both retail and institutional players. The proposed shift is part of the Japanese government’s broader “New Capitalism” strategy, which seeks to position the country as an investment-led economy.

The move comes amid growing interest in crypto as a legitimate investment asset. According to the FSA, more than 12 million domestic crypto accounts were active as of January 2025, with assets held on platforms exceeding 5 trillion Japanese yen (roughly $34 billion). The proposal also revealed that crypto ownership now surpasses participation in some traditional financial products, such as FX and corporate bonds, particularly among tech-savvy retail investors.

The proposal also responds to the surge in institutional engagement worldwide. The FSA cited data showing over 1,200 financial institutions, including US pension funds and Goldman Sachs, now hold US-listed spot Bitcoin ETFs. Japanese regulators aim to support similar developments domestically, especially as global fund flows into crypto continue to expand.

In April, Sumitomo Mitsui Financial Group (SMBC), TIS Inc, Ava Labs, and Fireblocks signed a Memorandum of Understanding to explore the commercialization of stablecoins in Japan. The collaboration will focus on issuing stablecoins pegged to both the US dollar and Japanese yen. The group also plans to examine the use of stablecoins for settling tokenized real-world assets such as stocks, bonds and real estate. In March, Japan also issued its first license allowing a company to deal with stablecoins to SBI VC Trade, a subsidiary of the local financial conglomerate SBI, which said it was preparing to support Circle’s USDC (USDC).

This reclassification could have significant implications for the crypto market in Japan. By recognizing crypto as financial products, the FSA aims to provide a clearer regulatory framework that could attract more institutional investors and foster innovation in the crypto space. The proposed flat tax rate of 20% on digital asset income could also make crypto investing more appealing, potentially leading to increased adoption and investment in the sector.

However, the proposal is still in its early stages, and it remains to be seen how it will be received by the broader financial community and regulatory bodies. The FSA’s proposal is part of a broader effort to position Japan as a leader in the global crypto market, and it will be interesting to see how this initiative unfolds in the coming months.