The separate taxation system for cryptocurrencies to fully commence from 2027 onwards in conjunction with the revision of the Financial Instruments and Exchange Act

In the tax reform outline for fiscal year 2026, decided by the government on the 19th, it is clearly stated that a “separate taxation” will be applied to cryptocurrency transactions. At the same time, a loss carryforward deduction system is also expected to be established.

Major Differences from the Current System

Currently, profits obtained from cryptocurrencies are subject to comprehensive taxation as “miscellaneous income.” Since they are combined with income such as salary income, the effective tax rate, including resident tax, can reach up to 55%.

On the other hand, financial products such as stocks and investment trusts are taxed at approximately 20% under declared separate taxation, and the loss carryforward deduction system can also be utilized. The difference in tax burden has been recognized as an industry issue, and this tax reform aims to correct that.

Target Assets for Separate Taxation

The outline stipulates that separate taxation will be limited to “cryptocurrency assets that contribute to the formation of assets for the public.” The scope of targets is expected to include not only spot trading and derivative trading but also income generated from cryptocurrency-related ETFs (Exchange-Traded Funds).

Implementation Timing of the New Tax System Depends on Legal Revisions

The Financial Services Agency has indicated a plan to change the legal classification of cryptocurrencies from a means of settlement under the current “Payment Services Act” to financial instruments under the “Financial Instruments and Exchange Act.” The bill is expected to be submitted and enacted during the next ordinary session of the National Diet.

The new cryptocurrency taxation system is scheduled to be applied from January 1 of the year following the enforcement of the amended Financial Instruments and Exchange Act. Since it may take about a year from the legal revision to enforcement, the actual start of application could be delayed until January 2028.

In the previous year’s outline, the wording was vague, merely stating “consider reviewing,” but the more specific indication of the implementation timing this time is considered a significant development.

Simultaneous Introduction of Loss Carryforward Deduction System

The new tax system will also establish a three-year loss carryforward deduction system. This will allow losses incurred from cryptocurrency transactions in a given year to be carried forward for three subsequent years and offset against profits.

The government plans to finalize the revised tax reform outline at the Cabinet meeting within the year.