Japan's ruling coalition has released a draft tax reform blueprint for fiscal year 2026 that would fundamentally reshape how cryptocurrency assets are taxed in the country. The outline, published on December 19 by the Liberal Democratic Party and the Japan Innovation Party, proposes classifying digital assets as financial products rather than speculative assets, marking a significant shift in their regulatory treatment.
The reform explores introducing a separate taxation system for crypto income, similar to how stocks and investment trusts are taxed. Under the current system, crypto gains are taxed as "miscellaneous income" with progressive rates reaching up to 55%. The new separate taxation would apply to crypto spot trading, derivative transactions, and Exchange-Traded Funds (ETFs).
However, the draft does not clearly address how reward-based transactions like staking or lending would be handled. According to existing rules, when crypto assets are received as rewards (e.g., from staking), they are valued at market price at acquisition and taxed as miscellaneous income. If sold later, capital gains from those rewards face additional taxation.
Non-Fungible Tokens (NFTs) will likely remain subject to comprehensive taxation, as the reform doesn't explicitly mention them, suggesting NFT trading could continue to be treated as miscellaneous income.
The separate taxation system may apply only to limited cryptocurrencies, as the reform stipulates the new system for "businesses based on the premise of 'trading in specified crypto assets.'" This indicates that not all cryptocurrency transactions will uniformly fall under the new system, with implementation likely involving a specifically defined scope.
The 2026 tax reform also proposes allowing losses from crypto transactions to be eligible for carryforward deductions for up to three years, similar to foreign exchange and stock policies in Japan. This would make tax adjustments easier for investors, who previously had to offset unrealized losses against gains in profitable years to reduce taxable income. However, these losses cannot be netted against stock gains or other asset classes.
Finally, the report notes the potential introduction of an exit tax in the future. While crypto assets are currently not subject to exit tax upon leaving Japan, their reclassification as financial instruments under the Financial Instruments and Exchange Act could create a system where unrealized gains become taxable upon departure.
