In Japan, when you deal with cryptocurrency, you're dealing with taxes too. The National Tax Agency (NTA) has clear rules on how crypto gets taxed. This guide will clear all your doubts regarding crypto taxes in Japan and how you can report them correctly to steer clear of penalties.

Is Crypto Taxed in Japan?

Absolutely, in Japan, they do tax cryptocurrency.

Cryptocurrency is considered like owning property and falls under the tax category of Miscellaneous Income according to the Payment Services Act (PSA) and the Financial Instruments and Exchange Act (FIEA).

When you purchase, hold, or transfer cryptocurrency between wallets, you won't be taxed. Also, the National Tax Agency (NTA) doesn't differentiate yet between individuals and businesses regarding cryptocurrency taxes.

If you've bought or sold cryptocurrency in the past financial year and your gains were over 200,000 JPY, you'll need to report those amounts on your Income Tax return.

Will the tax authorities (NTA) know about your cryptocurrency holdings?

Yes, they likely will if you're using a Japan-based Crypto-asset Exchange Service Provider (CAESP).

Here's why:

• Crypto exchanges in Japan have to be registered with the Financial Services Agency (FSA) before they can operate. This registration process, which can take up to six months, includes strict rules about cybersecurity and sharing user data.

• Japan is a founding member of the Financial Action Task Force (FATF) and part of the Asia-Pacific Group on Money Laundering (APG). The APG helps countries implement FATF guidelines and assesses their efforts.

In 2021, a man got convicted for avoiding crypto taxes, marking the first such case. He got a one-year sentence and a hefty fine of over 22 million JPY for breaking Income Tax laws. This shows that Japanese authorities are serious about crypto tax evasion!

Crypto is treated like other types of income

In Japan, any gains you make from cryptocurrency are taxed as Miscellaneous Income. This means they're subject to the same tax rate as your regular income.

Miscellaneous Income covers earnings that don't fit into categories like interest, dividends, real estate, business profits, salary, retirement funds, forestry income, capital gains, or temporary income.

How much do you owe in taxes?

In Japan, the amount of tax you owe on your cryptocurrency gains depends on your Personal Income Tax bracket. Profits from stocks fall into a different tax category and are taxed at a fixed rate of 20%.

Here's the breakdown:

• Crypto profits are taxed at rates ranging from 5% to a maximum of 45%. But when you add municipal tax, which is 10%, the total tax can go up to a maximum of 55%.

• If you make over 200,000 JPY from crypto, you have to pay Income Tax. Even if you earn less than that but plan to claim deductions for medical expenses or hometown taxes, you still need to report your crypto profits.

• If you earn less than 200,000 JPY from investments like crypto and aren't claiming deductions, you don't have to report your crypto gains on your annual Income Tax return.

• Unfortunately, losses from crypto investments can't be deducted from your income or other assets. Only losses from real estate, business, asset transfers, and forestry income are eligible for deductions. Cryptocurrency losses don't fall into any of these categories yet.

Here are situations where you might pay taxes under Miscellaneous Income for using cryptocurrency in Japan

• Selling cryptocurrency for any traditional currency, like Japanese Yen (JPY).
• Swapping one type of cryptocurrency for another, even stablecoins.
• Purchasing goods or services with cryptocurrency.
• Giving cryptocurrency as a gift.
• Receiving payment in cryptocurrency.
• Earning rewards from staking or liquidity pools.
• Receiving new coins from a blockchain fork.
• Mining cryptocurrency.
• Receiving airdrops of new tokens.
• Earning interest through decentralized finance (DeFi) platforms.
• Getting referral bonuses for introducing others to cryptocurrency.

Types of accounting methods used

In Japan, there are two ways to calculate the cost basis of your cryptocurrency: the total average method and the moving average method. Right now, Kryptos only supports the moving average method, also known as ACB.

How to report your cryptocurrency Taxes

You have two options: online or with paper forms.

For paper forms: If you only have income from employment, miscellaneous income like crypto gains, pensions, dividends, or occasional earnings, and you haven't made any estimated tax payments, use Form A.

For online filing, here's what to do:

1. Sign in or create an account with the National Tax Agency.
2. Navigate to relevant income, then select salary (給与).
3. Choose miscellaneous income (雑（その他）) and confirm (確定).
4. Depending on your situation, Answer "Do you wish to receive deductions for your home".
5. Select e-Tax for your submission method and proceed. You can also sync with the My Number Portal Website if you prefer.
6. Enter your miscellaneous income in Japanese Yen. Profit amount (収入金額): This includes your profit or loss from cryptocurrency transactions.
7. From the drop-down list (暗号資産), choose "crypto asset" as the category (種目).
8. Enter the name and legal address of the exchange. If you've earned profits from multiple exchanges, just enter the details of one, and add (ほか).
9. Complete the rest of your income tax return based on your personal circumstances.

Tax Filing Deadline

In Japan, the tax year starts on January 1 and ends on December 31. You can report your cryptocurrency taxes from February 16 to March 15.

Use Kryptos to easily file your Crypto Taxes with the NTA

Avoid the hassle and the risk of errors. Don't rely solely on your accountant to figure it out. Instead, use Kryptos. 

Here's how simple it is:

1. Sign up for a FREE account.
2. Choose Japan as your base country and Yen (JPY) as your currency.
3. Connect Kryptos to your wallets and exchanges. It works seamlessly with Coinbase, Binance, bitFlyer, Huobi, Kraken, and 3000 more.
4. Let Kryptos do the calculations. 
5. Your data is gathered, and your complete tax report is ready!
6. Upgrade to a paid plan to download your crypto tax report.
7. Share your report with your accountant, or use the figures from your Kryptos report to file your taxes with the National Tax Agency (NTA) yourself.

FAQs

1. What are the tax implications of dealing with cryptocurrency in Japan?

In Japan, cryptocurrency transactions are subject to taxation as Miscellaneous Income. This includes activities like purchasing, selling, transferring between wallets, and even receiving rewards from staking or participating in liquidity pools. It's essential to understand these tax implications to ensure compliance with Japanese tax laws.

2. How does Japan regulate cryptocurrency exchanges and user data for tax purposes?

Cryptocurrency exchanges in Japan must be registered with the Financial Services Agency (FSA) and adhere to strict cybersecurity measures. This registration process involves sharing user data, which means tax authorities like the National Tax Agency (NTA) can access information about cryptocurrency holdings. Compliance with international guidelines, such as those set by the Financial Action Task Force (FATF), further strengthens tax oversight.

3. What tax rates apply to cryptocurrency gains in Japan?

Cryptocurrency profits in Japan are taxed at rates ranging from 5% to 45%, depending on your Personal Income Tax bracket. With the municipal tax, the total tax can reach a maximum of 55%. It's crucial to report gains accurately and be aware of the corresponding tax obligations to avoid penalties.

4. Are there specific situations where cryptocurrency usage in Japan incurs taxes under Miscellaneous Income?

Yes, various scenarios trigger taxation under Miscellaneous Income in Japan, including selling cryptocurrency for fiat currency, purchasing goods or services, receiving payments, earning rewards through staking or DeFi platforms, mining, receiving airdrops, and more. Understanding these taxable events is essential for proper tax reporting.

5. What methods are available for calculating the cost basis of cryptocurrency in Japan?

In Japan, two primary accounting methods are used for calculating the cost basis of cryptocurrency: the total average method and the moving average method (also known as ACB). Currently, the moving average method is supported by Kryptos, simplifying tax reporting for cryptocurrency investors and traders.

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All content on Kryptos serves general informational purposes only. It's not intended to replace any professional advice from licensed accountants, attorneys, or certified financial and tax professionals. The information is completed to the best of our knowledge and we at Kryptos do not claim either correctness or accuracy of the same. Before taking any tax position / stance, you should always consider seeking independent legal, financial, taxation or other advice from the professionals. Kryptos is not liable for any loss caused from the use of, or by placing reliance on, the information on this website. Kryptos disclaims any responsibility for the accuracy or adequacy of any positions taken by you in your tax returns. Thank you for being part of our community, and we're excited to continue guiding you on your crypto journey!