Japan Passes Bill Classifying Crypto as Financial Product, Cutting Tax Rate

Japan’s parliament has passed amendments to the Financial Instruments and Exchange Act, formally reclassifying cryptocurrencies as financial products and paving the way for significantly lower taxes on crypto gains.

Crypto Reclassified Under New Legal Category

The amendments cleared the House of Councillors on Wednesday, completing passage through both chambers of the Diet. The bill places crypto assets in a distinct category similar to stocks and bonds, moving away from the previous framework under the Payment Services Act, which treated crypto mainly as a payment method. New rules include stricter insider trading bans, mandatory annual disclosures for certain crypto issuers, and harsher penalties for unregistered operations, raising the maximum prison term from three to ten years and fines up to 10 million yen, roughly $61,600.

Tax Rate Set to Drop Sharply

The amendments introduce separate crypto taxation at an effective rate of about 20%, along with a three-year loss carry-forward provision. This marks a major shift from Japan’s current system, which taxes crypto gains as miscellaneous income at rates up to 55%. The new tax rules are expected to take effect in January 2028, following enforcement starting in fiscal year 2027.

Groundwork Laid for Crypto ETFs

The law also sets the stage for domestic spot crypto ETFs, with the Japan Exchange Group reportedly eyeing first listings as early as 2027 through traditional financial institutions. Approval for bitcoin ETFs specifically has not yet been confirmed. The law is expected to be promulgated soon and take effect within a year, with detailed rules to follow through cabinet ordinances.