Japan Proposes 20% Flat Tax on Crypto Gains, Reclassifies Assets

Japan's Financial Services Agency (FSA) has proposed a significant regulatory overhaul for cryptocurrencies, aiming to reclassify them under the Financial Instruments and Exchange Act (FIEA). This move would formally recognize crypto assets as "financial products," subjecting them to the same disclosure, insider-trading, and custody rules that govern stocks, bonds, and traditional exchange-traded funds (ETFs). The proposal, if approved, would pave the way for spot-based crypto ETFs and introduce a uniform 20% capital-gains tax rate, replacing the current sliding scale that can reach up to 55% after local levies.

The FSA's proposal comes as Japan's crypto market has grown substantially. The agency argues that the market has outgrown the current framework under the Payment Services Act and requires stricter regulations to protect investors and foster growth. The proposed changes would align digital-asset taxation with equities, allowing investors to carry losses forward against future profits and potentially attracting more retail and institutional investors.

The FSA's plan is part of Prime Minister Fumio Kishida's broader "New Capitalism" agenda, which aims to transform Japan into an investment-driven economy. By harmonizing crypto with mainstream securities law and taxing it similarly, regulators hope to plug capital flight to other regions and position Tokyo as a hub for regulated digital assets. The proposal will be debated at the Financial System Council meeting scheduled for 25 June. If endorsed, the FSA will draft detailed listing and custody guidelines while coordinating with the Tokyo Stock Exchange. Market participants expect the first spot-crypto ETFs to list in fiscal-year 2026 at the earliest, once rule-making and exchange testing are complete.

The regulatory overhaul also includes broader digital-asset infrastructure developments. In April 2025, Sumitomo Mitsui Financial Group, TIS Inc., Ava Labs, and Fireblocks signed a memorandum to explore issuing US-dollar- and yen-pegged stablecoins and using them to settle tokenized stocks, bonds, and real estate. Earlier, in March 2025, SBI VC Trade became the first firm licensed to handle offshore stablecoins, clearing the way for Circle’s USDC to launch in Japan. These developments indicate a growing acceptance and integration of digital assets into Japan's financial ecosystem.

The proposed changes would mark the most significant overhaul of Japan's digital-asset rules since the 2018 Coincheck hack. By reclassifying crypto assets and introducing a flat tax rate, Japan aims to create a more attractive environment for both retail and institutional investors, potentially boosting domestic crypto adoption and positioning the country as a leader in regulated digital assets.

Japan is planning a significant shift in its approach to cryptocurrency regulation. The Financial Services Agency (FSA) has proposed bringing crypto assets under the Financial Instruments and Exchange Act (FIEA), which would subject them to the same regulatory framework as traditional financial products. This move is expected to facilitate the approval of Bitcoin exchange-traded funds (ETFs) and simplify the taxation of crypto gains, potentially making the market more attractive to investors.

Currently, crypto assets in Japan are regulated under the Payment Services Act. The proposed change would reclassify them as financial products, bringing them under the FIEA. This shift is part of a broader strategy to promote the utilization of digital assets and Web3 technologies, aligning with Japan's "Grand Design and Action Plan for New Capitalism." The plan aims to leverage these technologies to solve social problems and boost productivity, potentially creating new markets and increasing Japan's digital influence.

The proposed changes also include a significant shift in taxation. Currently, crypto gains are taxed on a progressive basis, with a maximum rate of 55%. The new proposal suggests a flat tax rate of 20%, similar to the rate applied to stocks. This change is expected to benefit numerous investors and encourage more people to invest in crypto assets. Additionally, the new legislation would likely enable the establishment of Bitcoin ETFs, making it easier for both institutional and retail investors to invest in cryptocurrencies through conventional financial systems. This would also strengthen the system of investor protection, making crypto investments safer and less opaque.

Japan's shift in crypto policy reflects a broader trend towards embracing digital assets. The government views cryptocurrencies as an alternative investment, distinct from traditional assets like stocks or bonds. By promoting crypto as a common means of investment, Japan aims to increase the number of investors and enhance their risk management experiences. This approach aligns with global trends, as some regions in the U.S. are also encouraging the crypto industry. Japan's move is expected to attract new investments and boost economic activity, positioning the country as a leader in regulated digital assets.