What is happening?
The Liberal Democratic Party (LDP) of Japan plans to classify cryptocurrencies as a new asset class and significantly reduce the capital gains tax on cryptocurrencies from the current maximum of 55% to 20%, aligning it with traditional financial products such as stocks. Many netizens believe that Japan’s current taxation system for cryptocurrencies is overly stringent, and if the LDP’s proposal is passed, Japan will become one of the leading markets for cryptocurrency development globally.
LDP Draft Bill: Cryptocurrencies to Become a New Asset Class with Capital Gains Tax Reduced to 20%
Recently, Japan’s ruling party, the Liberal Democratic Party, proposed a comprehensive reform of cryptocurrency regulations, aiming to separate cryptocurrencies from the current classification of “miscellaneous income” and include them in a new asset class. According to this proposal, cryptocurrencies will no longer be classified under the “Payment Services Act,” but will be regulated under the “Financial Instruments and Exchange Act.”
The proposal was announced by the LDP’s Digital Society Promotion Headquarters, which positions cryptocurrencies as a new asset class distinct from securities under the Financial Instruments and Exchange Act, aiming to achieve market development, investor protection, and separate taxation. The public is invited to provide feedback on the proposed reforms until March 31.
In simple terms, Japan will adopt clearer and more favorable regulatory management for cryptocurrencies and significantly reduce the capital gains tax rate on cryptocurrency transactions from the current maximum of 55% to 20%, similar to the tax rate on traditional financial products like stocks. The capital gains tax rate refers to the tax imposed by the government on the profits gained from the sale of capital assets (such as stocks, real estate, cryptocurrencies, etc.).
For instance, if Xiaoming buys some cryptocurrency for $1,000 today and sells it for $1,500 a year later, his capital gain would be $500 ($1,500 – $1,000). If Japan imposes a 55% capital gains tax on this profit, Xiaoming would have to pay $275 in taxes (55% of $500). Conversely, if the capital gains tax is reduced to 20%, he would only pay $100 in taxes (20% of $500). Currently, the tax rate on cryptocurrencies in Japan is as high as 55%, which has diminished the attractiveness of cryptocurrency investments in the country. According to the LDP draft bill, this reform will greatly promote the development of the cryptocurrency market, especially for long-term and institutional investors, as it is undoubtedly a favorable policy. The draft also mentions that this reform will enhance market transparency, protect investor rights, and pave the way for the potential introduction of spot cryptocurrency ETFs in the future.
Industry Response and Market Impact
In Taiwan, there are currently no clear and independent laws governing the taxation of cryptocurrencies; however, under existing tax laws, income generated from cryptocurrency transactions should still be subject to taxation. According to the current income tax law, gains from buying and selling cryptocurrencies are regarded as “property transaction income,” which needs to be actively reported and included in the comprehensive income tax for taxation. This means that if investors profit from trading cryptocurrencies, those profits are considered income and are subject to income tax.
The proposal for reforming Japan’s cryptocurrency regulations has sparked heated discussions within the industry. Most netizens believe that this reform will have a profound impact on the cryptocurrency market. The stringent current taxation system in Japan has deterred some investors from entering the cryptocurrency space. If the LDP’s proposal is successfully passed, it could position Japan as one of the leading markets for cryptocurrency development globally.
Leaders in Japan’s digital asset industry have also expressed support for this proposal. For example, Sota Watanabe, CEO of Web3 infrastructure company Startale, stated that this reform represents a significant victory for the entire industry. He noted that the collaboration between the government and industry leaders is yielding positive results, and he expects this reform to attract more domestic and international investors to the Japanese market.
Today is a big day for Japan. The ruling party proposed to regulate crypto with a new framework under the Financial Instruments and Exchange Act. If approved this year, crypto ETFs and a tax deduction from up to 55% to 20% are expected. I am 100% sure more Japanese people will come on-chain.— Sota Watanabe (@WatanabeSota) March 6, 2025
This proposal is currently open for public comments, and the final draft will be submitted to the Financial Services Agency for review by March 31, 2025.
Reference: Cointelegraph, The Block