This year there has been a tremendous amount of discussion about cryptocurrency, in part due to their across-the-board meteoric rise, and increasingly common coverage in major news outlets. Whether the topic is Bitcoin, Ethereum or one of the seemingly endless “Alt-coins“, no doubt we all know somebody with a strong opinion about the new technologies of the crypto-sphere. For crypto owners that find themselves living and working in Japan whom are classified as Japanese taxpayers, there is an understandable degree of trepidation when it comes to the topic of tax; which can be at the best of times difficult to understand for foreign residents. As of December 2017, the Japanese National Tax Agency have released some guidelines on the tax treatment of crypto currencies (or 仮想通貨).
The following are some guidelines as we interpret them, to assist in the calculation of your tax liability arising from profits in cryptocurrency investments in Japan (and outside too…).
Who Has To Pay Tax On Cryptocurrency Investment Gains?
Interestingly, not everybody will be subject to tax on their cryptocurrency investments. Based on the information provided by the tax office, the following people are, at this time, subject to taxation:
- People who receive annual remuneration in excess of 20,000,000 JPY per year.
- People who receive a salary from one place, but receive other miscellaneous income throughout the year that exceeds 200,000 JPY per year.
- People who receive a salary from more than one place, with other miscellaneous income totaling in excess of 200,000 JPY per year after allowable deductions.
- Those receiving any remuneration from a family corporation, shop, interest on a loan made, rental income from real estate or machinery etc.
- Anyone postponing tax on remuneration received via the disaster exemption clause.
- Anyone receiving income which is not subject to withholding tax at the source.
In summary, if you have received no income this year, and the profits realised on your cryptocurrency investment was less than 200,000 JPY, then you are not subject to tax (other than ordinary municipal taxes). If you are one of the people required to file an annual income tax return (e.g business owners and sole proprietors) then you must continue to do so, irrespective of whether or not your investments are ultimately taxable or not.
How Are Cryptocurrency Gains Treated For Tax Purposes In Japan?
You should be aware that gains realised from investments into cryptocurrency, for the purpose of tax in Japan, are treated differently to those of stocks and FX. Unlike the gains in your stock portfolio, which are taxed at a fixed rate of 20.315%, your crypto gains are treated as “miscellaneous income”. Because of this, gains should not be reported alongside those “separate incomes” (分離課税) made via FX and equity, and instead should be reported as if made via the physical transaction of goods (exactly the same as if you’d have made a profit selling hand-made baskets!), ultimately placing these gains on top of your employment income.
|Taxable Income||Tax Rate||Deduction|
|above 195万円 and less than 330万円||10％||97,500円|
|above 330万円 and less than 695万円||20％||427,500円|
|above 695万円 and less than 900万円||23％||636,000円|
|above 900万円 and less than 1,800万円||33％||1,536,000円|
|above 1,800万円 and less than 4,000万円||40％||2,796,000円|
Unfortunately, due to the classification of the profits, you are unable to utilise losses made elsewhere to offset some of the tax on the gains made on your coins. The opposite is also true- money lost in crypto currency investments cannot be used to offset income and profits gained from other sources. Further, the above tax rates do not include municipal taxes which total 10% and will be added at every income level. Because of this, crypto currency owners in Japan who also happen to be higher-rate tax payers will be paying 55% in taxes on their profits.
This is in stark contrast to the tax reduction strategies that can be employed by a stock-market investor who is able to ‘harvest losses’, or a real estate investor who is able to claim all manner of expenses to reduce his taxable profits. Naturally, many will be asking, “How do I reduce the tax payable on my crypto currency investments in Japan?“- the answer to which will be found in “Japan And Tax On Cryptocurrency – Part 2”.
[ Sources ]
– NTA: 所得税法（平成29年度版）
– A History of Ancient Coinage – Percy Gardner, Journal of Hellenic Studies, Vol 38 No 196