Cryptocurrency Tax Guide for Japan

japan tax guide
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Eivind Semb

Updated on February 27, 2022

Cryptocurrencies have been gaining significant popularity around the world in 2021, and tax authorities in most countries have today clarified how this asset class should be taxed so that people are able to report and pay their taxes according to the law. In Japan, any gain or income from cryptocurrencies is taxed and should be reported in the annual tax return according to the official Tax Answer No.1524 released by the Japanese National Tax Agency (NTA). In this complete cryptocurrency tax guide for Japan, we will explain everything you need to know about how the NTA classifies cryptocurrency, how much tax you must pay on cryptocurrency in Japan, and how Coinpanda can help Japanese crypto investors calculate and report their taxes to avoid penalties from the tax authority.

This guide will be updated regularly since the tax treatment of cryptocurrency is constantly changing. At Coinpanda, we are following the development of crypto taxes in Japan very closely. All updates will be listed below so that you can quickly see if anything has been updated since your last visit:

Latest updates

  • February 27, 2022: Cryptocurrency tax guide for Japan published!

Let’s start with the most important question of all…

Is cryptocurrency taxed in Japan?

Yes. Cryptocurrencies attract income tax in Japan when being sold, exchanged, traded, or otherwise disposed of. This means that all transactions where you are exchanging one cryptocurrency for another asset are considered taxable events and the resulting income will be taxed according to your normal income tax bracket.

Any cryptocurrency received from mining, staking, interest, or airdrops should also be reported and are taxed in a similar way as profits from trading cryptocurrency.

In the next section, we will go into more detail about how cryptocurrency is classified and taxed in Japan according to the Japanese National Tax Agency.

Classification of cryptocurrency and tokens

According to Japanese law, crypto assets such as BTC, ETH, etc are not considered to be official money and should therefore be treated differently than fiat currencies such as the Japanese yen for tax purposes. This statement is in line with how cryptocurrency is being viewed by governments from the majority of other countries in the world today.

On a general note, Japanese policymakers seem to actually be taking a rather proactive approach compared to other countries by establishing the Digital and Decentralized Finance Planning Office by the Japan Financial Services Agency (FSA) in July 2021. Among other things, this office was established to work on a legal framework specifically for fiat-backed stablecoins such as USDT and USDC.

So what does Japanese law actually consider cryptocurrencies to be from a legal point of view?

Cryptocurrencies and utility tokens

The legal status of any crypto asset today is determined based on its function and use case in Japan. Most cryptocurrencies, including utility tokens, are likely to be regulated as a Crypto Asset type under the Payment Services Act (PSA).

Security tokens

Tokens representing shares, bonds, or other securities-like financial products are regulated as a Security Token type under the Financial Instruments and Exchange Act (FIEA). Not many cryptocurrencies are likely to be classified as such today, but it’s important to be aware that this could have an impact on what you must report in your tax return if you have traded tokens that are regulated under FIEA.

Fiat currency pegged stablecoins

Stablecoins not redeemable for fiat currency are likely to be considered as a Crypto Asset type similar to utility tokens. On the other hand, stablecoins that are redeemable and can be exchanged for fiat currency might instead be classified as a means of payment in fund remittance transactions.

Non-fungible tokens (NFTs)

Other blockchain-based tokens not already mentioned, such as NFTs which gained significant adoption in 2021, that don’t have any specific economic function as a means of payment, are likely to not fall within the current regulatory framework that covers crypto assets today.

At the time of writing this article, no official guideline on the tax treatment of NFTs seems to be issued by the Japanese National Tax Agency. We recommend therefore consulting a local tax advisor if you have more questions about how to report profits from NFTs in your tax return.

How is cryptocurrency taxed in Japan?

The Japanese National Tax Agency (NTA) has stated that profits arising from the trading of crypto assets are to be considered as miscellaneous income (zatsu-shotoku). This means that gains from the disposal of cryptocurrencies are taxed similar to other income such as your employment income.

The NTA doesn’t seem to have issued specific guidance on how earnings from cryptocurrency mining or staking should be taxed, but most tax advisors in Japan seem to agree that any type of income from cryptocurrency, including mining and staking, are to be considered as miscellaneous income similar to trading profits.

Japan cryptocurrency tax rate

So how much tax do you need to actually pay on your cryptocurrency gains and income?

Japan has a progressive tax rate system for income considered miscellaneous income. The tax rate varies from 5% to 45% on the total profits. All taxpayers are also obliged to pay a mandatory inhabitant tax of 10% on the total profits. The inhabitant tax rate is comprised of a prefectural and municipal tax rate of 4% and 6% respectively. The effective tax rate in Japan is therefore between 15% and 55%.

Let’s break down the tax rates for different income brackets in more detail.

Tax rateTaxable income bracket
5%¥0 – ¥1,950,000
10%¥1,950,001 – ¥3,300,000
20%¥3,300,001 – ¥6,950,000
23%¥6,950,001 – ¥9,000,000
33%¥9,000,001 – ¥18,000,000
40%¥18,000,001 – ¥40,000,000
45%¥40,000,001+
This table shows the tax rates for various income brackets in Japan. Source: Japan External Trade Organization

Japan also incorporates employment income deductions that varies with your total income amount:

Employment income deductionsEmployment income
¥550,000¥0 – ¥1,625,000
(employment income) x 40% – ¥100,000¥1,625,001 – ¥1,800,000
(employment income) x 30% + ¥80,000¥1,800,001 – ¥3,600,000
(employment income) x 20% + ¥440,000¥3,600,001 – ¥6,600,000
(employment income) x 10% + ¥1,100,000¥6,600,001 – ¥8,500,000
¥1,950,000¥8,500,001+
This table shows the different employment income deductions allowed in Japan. Source: Japan External Trade Organization

This means that if your total income during the tax year is less than ¥550,000, you are actually not paying any taxes at all.

How to calculate your profits from cryptocurrency

Now that we have covered how cryptocurrency is taxed in Japan and the different tax rates, you might ask yourself how do I actually calculate my income and profits from cryptocurrencies?

The general formula for calculating capital gain is:

capital gain = selling price – purchase price

To calculate the capital gains, you need to first establish the purchase price for the cryptocurrency sold or disposed of. The purchase price is also referred to as the cost basis.

Two different accounting methods are used in Japan for calculating cost basis:

  1. Moving average method – 移動平均法
  2. Total average method – 総平均法

Moving average method

The moving average method is equivalent to what is also known as the average cost basis method. This accounting method is in fact quite simple and considers the total cost for all assets of the same type in possession and uses this to find the average cost of each unit. When the average unit cost is established, the cost basis or acquisition cost of each disposal can be found directly.

All Japanese businesses dealing with cryptocurrency must use the Moving average method for calculating profits and losses.

Important note for Japanese private persons

After consulting with Japanese tax experts, it seems that private persons in Japan should no longer use the Moving average method for calculating profits from cryptocurrency trades based on an updated regularity framework issued by the Japanese National Tax Agency. To the best of our knowledge, the default accounting method to be used is the Total average method which will be explained in the next section. The Moving average method might still be allowed but will require a separate tax form to be submitted together with your tax return.

We are trying to confirm this from official sources in Japan and will update this guide when we have any news.

Total average method

The Total average method accounting method is rather similar to the Moving average method, but there is one special rule that separates the two apart:

The cost basis calculated for the disposal of any asset according to the Total average method must consider the total acquisition cost of all units of the same type during the entire financial year. This is contrary to the Moving average method which only considers the acquisition cost of the actual holdings at the time of disposal.

If this is difficult to wrap your head around – don’t worry! We will explain both methods using a simple example so it will be much clearer what separates the Total average method from the Moving average method.

Example 1 – Moving average method

Haruto has been investing in cryptocurrency in 2021. He bought BTC on three occasions and sold BTC on one occasion. Here are his four transactions during the 2021 financial year:

  • 2021-02-20: Bought 0.8 BTC for ¥5,200,000
  • 2021-08-03: Bought 0.3 BTC for ¥1,400,000
  • 2021-10-07: Sold 0.7 BTC for ¥4,600,000
  • 2021-12-15: Bought 1 BTC for ¥5,600,000

His transactions can be seen in the below table:

TypeDateTaxable event?ValuePurchase price
(Cost basis)
Profits
Buy2021-02-20No¥5,200,000
Buy2021-08-03No¥1,400,000
Sell2021-10-07Yes¥4,600,000(?)(?)
Buy2021-12-15No¥5,600,000

First, we need to establish the acquisition cost and average unit cost for his holdings at the time of disposal.

Acquisition cost = ¥5,200,000 + ¥1,400,000 = ¥6,600,000

Average unit cost = ¥6,600,000 / (0.8 BTC + 0.3 BTC) = ¥6,000,000

We can now find the cost basis and resulting profits easily:

Cost basis = 0.7 BTC * ¥6,000,000 = ¥4,200,000

Profits = ¥4,600,000 – ¥4,200,000 = ¥400,000

The table can now be updated with the calculated values:

TypeDateTaxable event?ValuePurchase price
(Cost basis)
Profits
Buy2021-02-20No¥5,200,000
Buy2021-08-03No¥1,400,000
Sell2021-10-07Yes¥4,600,000¥4,200,000¥400,000
Buy2021-12-15No¥5,600,000

Haruto has therefore realized a total profit of ¥1,781,818 in 2021.

Next, we will look at the same example but for the Total average method.

Example 2 – Total average method

The first thing we need to do is calculate the total acquisition cost for BTC during the entire financial year.

Total acquisition cost = ¥5,200,000 + ¥1,400,000 + ¥5,600,000 = ¥12,200,000

Average unit cost = ¥12,200,000 / (0.8 BTC + 0.3 BTC + 1 BTC) = ¥5,809,524

We can now find the cost basis and resulting profits easily:

Cost basis = 0.7 BTC * ¥5,809,524 = ¥4,066,667

Profits = ¥4,600,000 – ¥4,066,667 = ¥533,333

The table can now be updated with the calculated values:

TypeDateTaxable event?ValuePurchase price
(Cost basis)
Profits
Buy2021-02-20No¥5,200,000
Buy2021-08-03No¥1,400,000
Sell2020-10-07Yes¥4,600,000¥4,066,667¥533,333
Buy2021-12-15No¥5,600,000

As we can see, the resulting profits are different using the two accounting methods Moving average cost and Total average cost.

Most crypto investors and traders in Japan prefer to use cryptocurrency tax software to do all the required calculations automatically for them. Coinpanda is one of the very few tax solutions that support the Total average method for Japan today. You can import transactions automatically from over 500+ exchanges and download specific tax forms for Japan that you can submit with your tax return.

It is 100% free to create an account and see if the software works for you!

Which transactions are taxed Japan?

We have now established how cryptocurrency is taxed in Japan and also the different tax rates that apply for profits considered miscellaneous income.

Below, we will summarize some of the most common taxable transactions that Japanese cryptocurrency investors might encounter.

Selling cryptocurrency for fiat currency (Ex: BTC → YEN)

Selling cryptocurrency for any fiat currency like the Japanese yen is a taxable event in Japan according to the NTA. The total profits during the tax year are considered miscellaneous income and are taxed according to your ordinary income tax bracket.

blue tax icon

Tax status:

Miscellaneous income

Exchanging crypto for another crypto (Ex: ETH → MONA)

Exchanging one cryptocurrency for another cryptocurrency is considered a taxable event similar to exchanging cryptocurrency for fiat currency. In the tax guidance issued by the NTA, it is clearly stated that each disposal of cryptocurrency is a taxable event and the total profits should be considered as miscellaneous income.

The implication of this is that each crypto-to-crypto trade is a taxable transaction. This includes also transactions with stablecoins such as USDT or USDC.

blue tax icon

Tax status:

Miscellaneous income

Paying for goods or services

If you have used cryptocurrency to pay for any goods or services, you have also realized the profits or loss on the crypto asset disposed of. This means that you must calculate the cost basis and resulting gain/loss for all transactions where cryptocurrency is used as means of payment.

Today, there are several popular cryptocurrency debit cards like the Crypto.com Visa Card or Binance Card. All transactions with cards like this are, generally speaking, taxable transactions.

If you have used cards like this, you can upload the transaction history to a cryptocurrency tax software like Coinpanda to calculate the taxes automatically which can be a significant time-saver.

blue tax icon

Tax status:

Miscellaneous income

Getting paid in cryptocurrency

If you are receiving your employment salary in cryptocurrency, you must report the market value of the coins in yen at the time you received them. This means that any cryptocurrency received from employment, freelancing, or other income sources is taxed similar to ordinary income received in yen directly.

blue tax icon

Tax status:

Miscellaneous income

Cryptocurrency mining rewards

Cryptocurrency received from mining attracts income tax based on the market value of the coins at the time you received them. The total rewards during the tax year will be taxed as miscellaneous income similar to other income.

blue tax icon

Tax status:

Miscellaneous income

Airdrops, interest, bonuses

Any cryptocurrency received such as airdrops, interest payment, signup bonuses, trading rewards, etc are taxed as miscellaneous income.

blue tax icon

Tax status:

Miscellaneous income

Tax free transactions in Japan

Buying cryptocurrency with fiat currency (Ex: YEN → BTC)

Buying cryptocurrency with fiat is not considered a taxable event in Japan. Note that it’s important to keep track of all your purchases and complete transaction history so that you can calculate the total acquisition cost and cost basis when you later sell the crypto assets.

blue tax icon

Tax status:

Not taxed

Transferring crypto between wallets

Luckily, transferring cryptocurrency between your own wallets is not taxed in Japan. Generally speaking, you are only taxed when cryptocurrency is sold or disposed of, and transferring crypto assets between wallets you own is not considered as such.

blue tax icon

Tax status:

Not taxed

Tax deadline in Japan

The financial year in Japan runs from the 1st of January until the 31st of December every year. You will be able to file your taxes from the 16th of February and the final tax deadline is the 15th of March.

There are different extension options that you might be allowed to apply for, so we suggest contacting the NTA directly or a tax advisor in Japan if you will not be able to file before the tax deadline of 15th of March.

Cryptocurrency tax software

Figuring out your crypto taxes might feel overwhelming at first, but hopefully, it’s a bit clearer after reading this guide. So far, we have explained everything you need to know about how cryptocurrency is taxed in Japan. However, you might still be wondering how to actually do all the required calculations for the Total average method according to the guidelines issued by the Japanese National Tax Agency.

RECOMMENDED

Calculating your crypto taxes using crypto tax software

The best option for most people is likely going to be using cryptocurrency tax software to do the calculations for them. If you want to save both time and money, here is how you can use Coinpanda to sort out your crypto tax situation and generate all the required tax reports automatically:

1. Sign up for a 100% free account

It is 100% free to create a Coinpanda account and you don’t need to enter any credit card information to get started. The free plan lets you explore and use all features for free.

Sign up with Coinpanda for free now!

dashboard 2022
The Coinpanda dashboard page

2. Connect all your exchange accounts and wallets

Coinpanda supports more than 500+ exchanges, wallets, and blockchains today. This includes also popular Japanese exchanges like bitFlyer, Coincheck, Bitbank, and Liquid. You can easily import all your transactions by connecting your exchange accounts with API keys or by uploading a CSV file with the transaction history. If you find that Coinpanda doesn’t support an exchange you have used, reach out to us so we can add the integration (usually within a few days).

3. Wait for Coinpanda to crunch all the numbers

First, you need to make sure that the Total average method is selected as the Cost basis method on the Settings page. Next, get yourself a cup of your favorite beverage and wait for Coinpanda’s sophisticated calculation engine to crunch all the numbers for you. Coinpanda will automatically calculate the cost basis, proceeds, profits and losses, and taxable income for all your transactions!

total cost basis
Coinpanda Settings page where you must select TCB (Japan)

4. Check for any reported warnings

Coinpanda will automatically display a warning if it appears that one or more transactions are missing. If you see any warnings, you should first double-check that you have in fact connected all your wallets and exchange accounts.

Do you still see any warnings? Fear not! We have written an extensive list of help articles that will guide you through the entire process of making sure your crypto tax reports are as accurate as possible. If you still need any help, the best way to get in touch with our customer support and tax experts is through live chat.

5. Download your tax reports and tax forms

When you have successfully imported all transactions, the final step is to download the tax reports you need to file your taxes. You can download a special tax report for Japan that includes all taxable transactions and can be used as a basis for tax audit later. Coinpanda’s tax plans start at $49 and you have lifetime access to all reports after upgrading.

Total average method (TAM)

At the time of writing, Coinpanda is one of very few crypto tax solutions today that can calculate cost basis correctly for Japan according to rules for Total average method, or 総平均法 (Sō heikin-hō) in Japanese.

It is 100% free to create an account and see if the software works for you!

Sign up for a free account today and save both time and money!

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