The revenue mechanism until becoming a high-income taxpayer through cryptocurrency investment

Introduction

With the rapid expansion of the cryptocurrency market, there has been an increase in cases where individual investors become “high taxpayers.” So, at what specific level do profits generated from cryptocurrency investments lead to a high tax burden, and how are they treated under Japan's tax system? Let's examine the actual situation.

What are the criteria for high taxpayers?

Legally, high taxpayers refer to individuals or corporations with significant tax obligations. The standards vary by country and region, but in Japan, earning an annual income of 100 million yen or more is generally considered to classify someone as a high taxpayer. However, in the case of cryptocurrencies, the path to reaching this standard is characterized by a much faster progression compared to other industries.

Taxable profits from cryptocurrency transactions

Profits from cryptocurrencies can originate from multiple sources. These include capital gains from buying and selling, rewards from mining and staking, and fee income from providing liquidity to DeFi protocols, among others.

Particularly noteworthy are the price surges of major cryptocurrencies like Bitcoin and Ethereum. Early investors in the 2010s, who purchased assets at low prices at that time, have seen their holdings grow to hundreds of millions of yen, resulting in many cases of individuals being listed as high taxpayers.

How cryptocurrencies are treated under Japan's tax system

Under Japan's current tax system, profits obtained from cryptocurrencies are classified as “miscellaneous income.” This differs from employment income or business income, and the progressive tax system applies, which is a crucial point. As a result, the maximum tax rate can reach up to 55%.

For example, if someone earns 1 billion yen in cryptocurrency trading profits in a year, theoretically, they would owe 550 million yen in income tax. Due to the heavy tax burden, accurate record-keeping of profits and consulting with tax professionals are essential.

High taxpayers created by the cryptocurrency boom

Since 2020, following the COVID-19 pandemic, investment and trading activities from home have become more active. Forward-thinking investors and engineers quickly caught onto this trend and achieved significant profits. In the process, some have grown into high taxpayers, attracting attention within the industry.

Furthermore, the expansion of new businesses based on cryptocurrencies has also contributed to increasing the number of high taxpayers. Project founders and early large holders are often faced with substantial tax filings due to asset growth associated with business development, creating this dynamic.

Future outlook and points to note

As the cryptocurrency market continues to expand, the number of new high taxpayers is expected to increase. However, external factors such as regulatory changes and tax reforms are difficult to predict and could impact the market.

For investors, it is crucial to regularly track profit records, ensure accurate tax filings, and stay informed about market trends. Diligently managing these fundamental tasks is key to maximizing earnings from cryptocurrencies and minimizing tax risks.