Having trouble reporting your cryptocurrency transactions on your taxes in Japan? You are not alone. Cryptocurrency’s unique properties make tax reporting a challenge all over the world. While the National Tax Agency (NTA) is cracking down on crypto tax fraud, it’s often difficult for investors to accurately report their gains, losses, and income.
In this guide, we’ll break down everything you need to know about how crypto is taxed in Japan. We’ll also break down how the NTA taxes different transactions and share a simple strategy to help you report your taxes in minutes.
Profits from cryptocurrency are considered ‘miscellaneous income’ subject to income tax. This includes gains from the sale of cryptocurrency and income from activities such as mining and staking.
Here are the tax rates that you’ll pay on your income from cryptocurrency and other sources.
Remember, you won’t pay a flat tax on your income for the year. Instead, you’ll pay different tax rates as you progress through different tax brackets.
In addition, Japanese residents are required to pay the 10% inhabitant tax. That means your effective tax rate on cryptocurrency will be between 15-55%.
Japan’s tax rates on cryptocurrency are some of the highest in the world. Tax rates on cryptocurrency are significantly higher than capital gains tax on stocks and equities, which is capped at 20%.
In Japan, the tax year runs from January 1st to December 31st. Your taxes must be reported by March 15th of the following year.
In general, you’ll pay taxes when you earn or dispose of your cryptocurrency.
When you earn cryptocurrency, you’ll recognize income based on the fair market value of your crypto at the time of receipt.
Here are a few examples of cryptocurrency earning events .
When you dispose of cryptocurrency, you’ll recognize income based on how the price of your crypto has changed since you originally received it.
Here are a few examples of cryptocurrency disposal events.
At this time, it’s reasonable to assume that there’s no tax for the following transactions.
To calculate your income from crypto disposals, you can use the following formula.
In this case, your proceeds are how much you received for disposing of your cryptocurrency. Meanwhile, your cost basis is how much you paid to acquire your cryptocurrency.
To better understand how to calculate gains and losses, let’s take a look at an example.
Cryptocurrency earned through staking, mining, and airdrops is considered income. You’ll recognize income based on the fair market value of your crypto at the time of receipt.
If you dispose of your cryptocurrency rewards in the future, you may be subject to additional income tax based on how the price of your crypto has changed since you originally received it.
In Japan, cryptocurrency losses can offset gains from cryptocurrency and other sources of ‘miscellaneous income’ within the same tax year. However, crypto losses cannot offset stock gains and income from your job. In addition, individuals cannot carry forward crypto losses into future tax years.
If you’ve used a major exchange in Japan, it’s likely that the NTA already has information about your cryptocurrency transactions. After the hack of the Tokyo-based exchange Coincheck, regulators have been paying close attention to the crypto ecosystem.
Today, exchanges are required to register with the FSA IN and follow strict requirements on data sharing in order to operate in Japan.
In addition, it’s important to remember that transactions on blockchains like Bitcoin and Ethereum are publicly visible. In the past, tax agencies around the world have used ‘data matching’ to match known individuals to anonymous wallets.
You can report your cryptocurrency income online or through paper forms.
If you wish to report your taxes online, you can report your taxes through the National Tax Agency’s online portal.
If you wish to report your taxes on paper forms, you can report your miscellaneous income on Form A.
Trying to calculate your gains and losses manually can take serious time and effort. With crypto tax software like CoinLedger, you can file your cryptocurrency taxes in three easy steps.
Step 1: Import your transactions from your exchanges and wallets.
Step 2: Watch the platform calculate your income and capital gains.
Step 3: Generate your tax report!
Let’s cap things off by answering some frequently asked questions about cryptocurrency taxes.
This guide breaks down everything you need to know about cryptocurrency taxes, from the high level tax implications to the actual crypto tax forms you need to fill out.
Here’s how much tax you'll be paying on your income from Bitcoin, Ethereum, and other cryptocurrencies.