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Japan Crypto Tax Guide 2021

Last updated: Friday, 8 October 2021

Cryptocurrency - 仮想通貨 – Kasō tsūka - transactions attract Income Taxes in Japan. The Japanese National Tax Association (NTA) has set out guidelines on how crypto is taxed. Here we break down everything you need to know about crypto taxes and how you can avoid notices, audits and penalties later on, and offer tips on how to reduce your Japanese crypto tax bill.

This guide is regularly updated

Before we start - crypto tax rules are in constant flux. At Koinly we keep a very close eye on the NTA'S crypto policies - here - and regularly update this guide to keep you informed and tax-compliant.

First Published 08 October 2020: Welcome to your Japan cryptocurrency tax guide!

Yes, Cryptocurrency is taxed in Japan.

Cryptocurrency is viewed as property and is taxed in Japan States as Miscellaneous Income, under the Payment Services Act (PSA) and the Financial Instruments and Exchange Act (FIEA).

You won't pay tax when you buy crypto, hold crypto, or move your crypto between wallets. In addition, the NTA does not yet distinguish between individuals and business when it comes to cryptocurrencies taxes.

If you’ve bought or sold cryptocurrency in the last financial year, you'll need to declare your crypto totals on your Income Tax return.

Will the NTA know about your crypto?

Yes. If you have an account with an Japan-based Crypto-asset Exchange Service Providers (CAESPs), then it's likely that the NTA already has your data.

  • Crypto exchanges in Japan are required to be registered with the FSA IN order to operate – a process which can take up to six months and which imposes stricter requirements around both cybersecurity and data sharing.
  • In addition, Japan is a founding FATF member and also belongs to the powerful Asia-Pacific Group on Money Laundering (APG), a powerful FATF-style regional body (FSRB) that helps member countries to implement FATF guidelines and also mutually evaluate their efforts.

Miscellaneous Income

Cryptocurrency gains are taxed as Miscellaneous Income in Japan (and taxed at your regular Income Tax bracket?)

Miscellaneous Income refers to income that does not fall under interest income, dividend income, real estate income, business income, salary income, retirement income, forestry income, capital gains, and temporary income.

How much will you pay?

In Japan, the amount of tax you pay on crypto gains depends on the personal Income Tax bracket you're in. 

Japanese crypto investors could pay a maximum of 55% tax on crypto under Income Tax. By contrast, profit made from stocks sit under a different tax category and are taxed at a fixed rate of 20%.

  • Allowances: If your annual income is under 200,000 yen, you don't need to pay Income Tax.
  • Tax rate: Starts at 5% with a maximum of 45%.
  • Municipal tax: 10% has to be added at any rate, which ultimately leads to a maximum tax rate of 55%.
  • Losses: A crypto loss cannot be deducted from income or other assets. As of now, only losses from real estate, business, asset transfers and forestry income can be deducted from income, and cryptocurrencies do not classify as any of these categories.

Here are some example of when you might be taxed under Miscellaneous Income for transacting with crypto in Japan:

  • Selling crypto for any fiat currency
  • Exchange crypto for crypto, including stablecoins
  • Buying goods and services with crypto
  • Gifting crypto
  • Getting paid in crypto
  • Earning staking rewards and from rewards from liquidity pools
  • Receiving new coins from Forks
  • Mining crypto
  • Airdrops
  • DeFi interest
  • Referral bonus

Accounting method used

Two cost basis methods are used in Japan, the Moving Average Method and the Total Average Method.

Moving Average Method: This statement is used by those who have income from cryptocurrency transactions to calculate their income using the moving average method.

Total Average Method: This statement is used by those who have income from cryptocurrency transactions to calculate their income using the total average method.

How to report Income Tax

Form A: Use this form if you only have employment incomemiscellaneous income such as cryptocurrency gains, pensions, dividend income or occasional income, and do not have any estimated tax prepayment.

Tax deadline

The Japanese tax year runs from January 1 to December 31. Taxpayers can file their crypto taxes from 16 February to 15 March.

Who can help you calculate your crypto tax?

Crypto tax reporting is fairly new, and a road less travelled for most accountants. That doesn't mean Japan's NTA is going to cut you any slack. Here are 4 ways you can tackle your crypto taxes and keep in the taxman's good books. We'll start with the easiest and most accurate method first.

  1. Use a crypto tax calculator like Koinly to create a report of crypto activity. Send the report to your accountant to complete your tax return. Super accurate, super easy.
  2. Use a crypto tax calculator like Koinly to create a report of crypto activity. Add the necessary data to your tax return and file it yourself. Accurate, and easy, if you know what you're doing.
  3. Get your accountant to work out your crypto activity by supplying transaction histories, statements etc. Let them work it out and file for you. Not very accurate, lots of admin.
  4. Work out your activity yourself, and file yourself. (Best of luck to you.)

How to use a crypto tax app like Koinly

Don't get stuck in the busywork. Don't get it wrong. Don't rely on your accountant to know where to look. Use Koinly. Here's how easy it is:

  1. Sign up for a FREE account.
  2. Select your base country (Japan) and currency (Yen).
  3. Connect Koinly to your wallets and exchanges. Koinly integrates with Coincheck, Binance, bitFlyer, Huobi, Kraken, Paybis, and 600+ more. (See all)
  4. Let Koinly crunch the numbers. Make a matcha latte.
  5. Ta-da! Your data is collected and your full tax report is generated!
  6. To download your crypto tax report, upgrade to a paid plan from $49 per year.
  7. Send your report to your accountant, or complete your NTA tax submission yourself, using the figures from your Koinly report.

Now that you know how to go about calculating and submitting your taxes, let's explore Japan's crypto tax rules in more detail. Here's a breakdown of the most common crypto scenarios and the tax liability they trigger:

Crypto Income Tax examples

Selling crypto for fiat

According to the NTA, selling crypto for fiat currency, such as the Japanese Yen, is a taxable event. Profit made from the sale of cryptocurrency attracts a tax as Miscellaneous Income.

EXAMPLE

Keko purchases 0.1 Bitcoin in July 2017 for ¥1,000 and sells it in November 2017 for ¥2,000. His total capital gain is thus ¥1,000.

MISCELLANEOUS INCOME TAX

Swapping crypto

Trading one crypto for another (ex. BTC → XRP) is a taxable event in Japan. The NTA sees a trade as 2 separate transactions, first you are selling your BTC for X amount of fictional yen, then you are buying ETH with these fictional yen.

Even though you never received any yen in hand, you still have to pay tax on the sale of the BTC.

The fair market value in yen of the purchased coins is used to determine the gain. If the cryptocurrency that you received can't be valued, you will have to take into account the market value of the crypto you sold at the time of the transaction.

EXAMPLE

Let's say you purchased 1 Bitcoin for ¥1,000 in July 2017.

In November 2017, you exchanged 0.5 Bitcoin for 3 Ether. At this time, the market value of 3 Ether was around ¥2,000.

This means your capital proceeds come to ¥2,000 and the cost of acquisition is ¥500. In other words, your income gains would be ¥1,500.

MISCELLANEOUS INCOME TAX

Gifting crypto

Gifting crypto is viewed exactly the same as selling it, so it's a taxable event and you'll need to pay Miscellaneous Income Tax. The proceeds would be the fair market value of the crypto in yen on the date when the gift was given.

EXAMPLE

Jane bought 1 ETH for ¥2,000 in Jan 2020. in June 2020, she gives her daughter crypto as an 18th birthday present, on which day the ETH is valued at ¥4,000. The difference of ¥2,000 is the 'gain' that Jade made, even though she did not sell her ETH back into yen, and she effectively gave the crypto away.

At tax time, Jane's gain of ¥2,000 attracts Income Tax.

MISCELLANEOUS INCOME TAX

Trading with stablecoins

A stablecoin is simply a class of cryptocurrency that offers price stability. That's because stablecoins are backed by a reserve asset, usually a stable fiat currency like JPY or USD. As far as the NTA is concerned however, stablecoins like TrueUSD are exactly the same as any other cryptocurrency, and so the tax treatment - Miscellaneous Income Tax - is the same as for regular crypto to crypto exchanges.

MISCELLANEOUS INCOME TAX

Mining

Mined rewards generates taxable income. You have to declare it on your Income Tax statement as additional Miscellaneous Income

MISCELLANEOUS INCOME TAX

Getting paid in Bitcoins

Whether you are freelancing or working for a company that pays employees in crypto, you can't escape income tax.

Any coins received as income are taxed at fair market value, in yen, at the time you received them. Bitcoin and all cryptocurrency income must be declared it on your Income Tax statement as additional Miscellaneous Income.

MISCELLANEOUS INCOME TAX

Spending crypto on goods and services

Unfortunately, spending your bitcoin or any other cryptocurrency generates taxable income in Japan. You have to declare it on your Income Tax statement as additional Miscellaneous Income

MISCELLANEOUS INCOME TAX

Airdrops

The value of a coin received through an airdrop generates taxable income. You have to declare it on your Income Tax statement as additional Miscellaneous Income

MISCELLANEOUS INCOME TAX

Interest from DeFi / Lending / Staking / Masternodes

Lending your cryptocurrency and getting interest on the same generates taxable income. You have to declare it on your Income Tax statement as additional Miscellaneous Income.

MISCELLANEOUS INCOME TAX

Signup & Referral bonuses

Any crypto you get in return for signing up or referring users to a service is taxed as Income. You have to declare it on your Income Tax statement as additional Miscellaneous Income

MISCELLANEOUS INCOME TAX

Tax free crypto examples

Buying cryptocurrency

Like in most parts of the world, there are no taxes on buying cryptocurrencies in Japan.

However, keeping accurate records of the purchase is very important so that you can calculate the cost basis of the transaction when you decide to sell or 'dispose' of your crypto - as that is the moment when you will have to pay tax.

Koinly is not just a crypto tax calculator but a crypto portfolio tracker too - the perfect tool to keep a hold on your crypto purchase and sale dates.

TAX FREE

Transferring crypto between own wallets

Moving crypto between different wallets or accounts is not a taxable event and doesn't trigger CGT. Having said that, it's important to keep track of these movements because automated crypto tax software like Koinly use these movements to keep track of your cost-basis.

EXAMPLE

Let's say Sam buys 4LTC for ¥1,000 on Coinbase. She later moves the funds into her private LTC wallet. A few days later she transfers the LTC from her private wallet to her Binance account and sells it for ¥2,000, making a profit of ¥1,000.

If Sam wants to use Koinly to generate her crypto tax report, she will have to connect all three wallets. If she doesn't sync her private wallet but only syncs the Coinbase and Binance account, Koinly won't be able to identify that the funds she transferred into her Binance account are the same funds she purchased on Coinbase. However, once Sam adds her private wallet address, Koinly can match the transfer by tracing it from Coinbase to her wallet and then from her wallet to Binance. This will help in producing an accurate tax report.

If she no longer has access to her private wallet, she will have to make some manual changes using the Koinly web interface. She will have to mark the transfer from Coinbase as Ignored so that Koinly doesn't realize gains on it and she doesn't have to pay taxes twice. She would then change the value of the incoming transaction to Binance to match the cost-basis of the outgoing transaction from Coinbase.

TAX FREE

Holding

If your strategy is to simply buy and hold your crypto, then you don’t need to pay tax on your cryptocurrency you hodl, even if the value of your portfolio increases. The taxable event is when you sell, exchange or gift your crypto.

TAX FREE

Receiving crypto as a gift

If you’re lucky recipient of a gift or donation made in crypto, your 'gain' is not immediately taxed, in fact the event is tax free.

TAX FREE

Donating crypto

In Japan crypto donations work the same as regular donations - they're tax deductible if you're donating to a registered charity.

TAX FREE

Bonus: Use cryptocurrency tax software to automate your reports

Filing with your Koinly report

Ready to file? Whether you're filing yourself or handing the job over to your accountant, you'll need to start by downloading your crypto activity summary from Koinly.

While the task of preparing your crypto taxes can seem quite daunting - especially if you traded on multiple exchanges - there are tools like Koinly which can make your life really easy.Here's how it works:

1. Connect your exchanges and wallets

Most exchanges have API's that can allow Koinly to download your transaction history automatically. You can also import CSV or excel files with your transaction history if you prefer that (or if your exchange does not have an API).

Once imported you'll have a clear overview of your trades and can use Koinly as a portfolio tracker.

Link your cryptocurrency wallets and exchanges to your Koinly account

2. Ensure your account settings are correct for Japan.

Your base currency should be JPY. The pre-selected cost-basis method is FIFO, which the cost basis method for Japan that Koinly supports.

Set your Koinly account to be NTA compliant

3. Head over to the Reports page.

Select the date range you need to file for. The Japanese tax year runs from 1 January to 31 December of the same year.

Koinly does a number of things under the hood in order to calculate your capital gains and income. First it fetches the market rates at the time of your trades, then it matches transfers between your wallets and exchange accounts and finally it calculates your capital gains.

The Japanese Financial year runs from July 01 to June 30 of the following year

4. Select and download your report

Koinly offers many downloadable tax reports. For Japan, the report you need to download is called 'Complete Tax Report'.

Koinly's ATO Report (myTax) provide crypto tax history for Japan income tax return

Your report will download as a PDF and will contain (sample report here)

1. Capital gains summary

2. Income summary

3. Asset Summary

4. End of Year Balances

5. Capital Gains Transactions

6. Income Transactions

7. Gifts, donations & lost assets

8. Expenses

9. Data sources

With your summaries calculated, it's time to share your data with the NTA.

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