Crypto Assets and Taxes | The Basics of Japan's Tax System and Tax Filing

Crypto Assets and Taxes — A Reality You Need to Know

If you buy something with crypto assets or exchange one crypto asset for another, you may be liable for taxes at that very moment—many people are surprised when they first hear this.

You might think, “But I just used a card?” or “It’s just an exchange?” However, under Japan’s tax system, that is the reality. If you use a crypto asset debit card like RedotPay, you’ll face significant difficulties when filing your year-end tax return unless you understand these tax rules.

This page summarizes the basics of Japan’s crypto asset tax system, how to prepare for your tax return, and points that are easy to overlook. However, please note that this page is intended to provide general information only and does not constitute individual tax advice. For final decisions, please consult a professional, such as a tax accountant, who is knowledgeable about crypto assets.

Basic Treatment in Japan

Under Japan’s Income Tax Act, capital gains from the sale of crypto assets, as well as gains realized when using crypto assets to purchase goods or services, are treated as “miscellaneous income” and, in principle, are subject to comprehensive taxation.

Due to the progressive tax system, the combined rate for income tax and resident tax can reach a maximum of 55% (including the Special Income Tax for Reconstruction). This tax regime differs significantly from the treatment of capital gains on stock investments (which are subject to separate taxation at approximately 20%), and this discrepancy is a source of concern for crypto asset investors.

“Aggregation with other income,” “progressive taxation,” and “inability to carry forward losses”—these three factors are the main reasons why the tax system for crypto assets is so stringent.

Timing of Taxation—Four Scenarios

Tax liability generally arises in the following situations:

1. Selling crypto assets and converting them to fiat currency

This is the most straightforward scenario. If you sell 1 BTC for 10 million yen and your acquisition cost was 8 million yen, the 2 million yen profit is classified as miscellaneous income.

2. Purchasing goods or services with crypto assets (the unrealized gain portion is subject to taxation)

RedotPay card payments also fall under this category. If you purchase USDT when 1 USDT = 1 USD and later use it for a card payment when 1 USDT = 1.1 USD, a capital gain of 0.1 USD per USDT is realized and becomes taxable at that point.

In the case of stablecoins, the capital gain is often close to zero, but for calculation purposes, it is not considered zero.

3. Exchanging one crypto asset for another (e.g., BTC → USDT)

Under tax law, purchasing USDT with BTC is treated as “selling BTC to purchase USDT.” If there is an unrealized gain on the BTC, it becomes taxable at that point.

4. Acquiring crypto assets through mining, staking, or airdrops

These are recognized as miscellaneous income at the fair market value at the time of acquisition.

Cases Requiring a Tax Return

For salaried employees, filing a tax return is required if income other than salary exceeds 200,000 yen. If profits from crypto assets exceed 200,000 yen, you must file a return.

However, you must file a resident tax return even if your income is 200,000 yen or less. Do not assume that “since I don’t need to file an income tax return, I don’t need to do anything”; you must file a separate resident tax return with your municipality.

Methods for Calculating Gains and Losses

Gains and losses are calculated using either the “weighted average method” or the “moving average method.” As a general rule, once you choose a method, you must continue using it.

Weighted Average Method

A method in which the total average acquisition cost over the year is used as the unit price. It offers the advantages of simple calculations and the ability to process everything at the end of the year.

Moving Average Method

A method in which the unit price is updated with each transaction. While it allows for real-time tracking of profit and loss, the calculations become more complex.

In practice, most people choose the total average method. Using a dedicated tool, either method can be automatically calculated from a CSV file at the end of the year.

Required Documents and Preparations

• Download transaction history (trades, transfers, and usage) from all exchanges in CSV format
• Select and record the method for calculating acquisition cost
• Tax Return Form (Form B)
• Annual Transaction Report (issued by the exchange)
• Usage history from RedotPay
• Records of gas fee payments (if applicable)

When you use a crypto asset debit card like RedotPay on a daily basis, valuation gains or losses occur with each transaction. Since manual aggregation is virtually impossible, it is recommended to design your operations from the outset with the assumption that you will use a tool.

Tools to Simplify Aggregation

Manual aggregation is not practical when there are a large number of transactions. The following services are widely used:

Cryptact

Supports domestic and international exchanges. A standard choice for residents of Japan. Also supports overseas services such as RedotPay.

Gtax

Integrates easily with tax filing software.

Koinly

An overseas service. Supports multiple currencies and blockchains.

CryptoLinC

Operated by a Japanese company. Optimized for the Japanese tax system.

These tools allow you to calculate your annual gains and losses by following this process: download a CSV file from an exchange → upload it to the tool → automatic aggregation. While they cost a few hundred to a few thousand yen per month, the savings in manual labor more than make up for the cost.

Handling of Overseas Exchanges and DeFi

Trades on overseas exchanges (such as Bybit and OKX) and DeFi platforms are also subject to Japanese taxation if you are a resident of Japan. It is crucial to avoid the misconception that “since I traded overseas, it doesn’t apply to me in Japan.”

Under the Common Reporting Standard (CRS), information on overseas financial accounts is increasingly being shared among tax authorities. The notion that “they won’t find out” carries significant risk in today’s world.

Considering Incorporation

If your annual profits are substantial (roughly several million yen or more), incorporating a business may help reduce your tax rate.

• Individuals: Up to 55% (progressive)
• Corporation: Effective tax rate of around 30%

Incorporation involves setup and operating costs, as well as fixed expenses such as social insurance premiums. We recommend consulting with a tax accountant to determine the optimal approach.

Current Status of Past Tax-Saving Strategies — Beware of Misinformation

Misleading information such as “offset losses with Hometown Tax Donations” or “offset miscellaneous income with a designated account” is often seen; however, as a general rule, miscellaneous income from crypto assets cannot be offset against other income categories. It is also not possible to “carry forward” losses finalized within the year to the following year.

In other words, tax-saving strategies common in stock investing—such as “incurring a loss within the year to offset the following year’s profits”—cannot be applied to crypto assets.

Practical Advice for Using RedotPay

Based on my experience using RedotPay for over two years, I’d like to offer some practical advice regarding tax matters.

Export Transaction History Monthly from the App

You can export your transaction history as a CSV file from the RedotPay app. Downloading this at the end of each month and storing it in a dedicated folder will make year-end reporting significantly easier.

If your portfolio is primarily composed of stablecoins, your unrealized gains and losses will be virtually zero

If you’re investing in USDT or USDC, unrealized gains and losses due to price fluctuations are virtually zero. Even with a high volume of transactions, the tax impact tends to remain minimal.

Settling in BTC or ETH complicates unrealized gains

If you make a 10,000 yen payment in BTC, it is treated as if you “sold 10,000 yen worth of BTC and used the proceeds to make a purchase.” If you have unrealized gains on your BTC, that amount is classified as miscellaneous income. This requires a calculation for every transaction, which is complicated. Standardizing payments to USDT or USDC simplifies things from a tax perspective.

Rewards from referral programs are also classified as miscellaneous income

Referral rewards earned using the RedotPay referral code are also classified as miscellaneous income based on the market value at the time of receipt. Be sure to keep records of these.

Tax Filing Process — A Rough Guide

1. Export data from all exchanges and RedotPay by the end of December
2. In January, use a dedicated tool to tally your gains and losses
3. Prepare your tax return during February
4. Submit via e-Tax or at a tax office counter by March 15

The National Tax Agency’s website provides a detailed guide on filing tax returns for crypto assets (“Tax Treatment of Crypto Assets, etc.”). We highly recommend reviewing it at least once during your first year.

Summary — Make it a habit to “record everything you use”

Crypto assets involve the hassle of filing tax returns and a tax burden. The more you use them for daily transactions, the higher your transaction volume becomes, and the more work you’ll have to do when tallying everything at year-end. It’s practical to balance convenience with tax costs by incorporating the use of a tracking tool and consulting with a tax accountant into your operational plan from the start.

At first, it’s enough to simply maintain the mindset of “recording everything you use.” You can handle the full-scale tallying by letting a tool take care of it at the end of the year.

This page provides general information and does not constitute individual tax advice. For final decisions, please consult a tax accountant or other professional knowledgeable about crypto assets. Tax laws are subject to annual revisions; be sure to check the National Tax Agency’s official information for the latest details.

We also recommend reviewing our “Getting Started” and “Introduction to Stablecoins” guides to gain a more comprehensive understanding of the basics of crypto assets.