Japan's Parliament Passes Legislation! Cryptocurrency Officially Classified as Financial Products, Tax Rate Significantly Reduced, Paving the Way for ETFs

According to NHK, Japan's House of Councillors voted on Wednesday to pass an amendment to the Financial Instruments and Exchange Act, completing the legislative process in both houses. This amendment includes cryptocurrencies in the category of "financial products," paving the way for a reduction in cryptocurrency tax rates and the promotion of cryptocurrency spot ETFs. It is seen as a significant milestone in the reform of Japan's cryptocurrency regulatory framework.

In the past, Japan primarily regulated cryptocurrencies as "payment instruments" under the Payment Services Act. With the passage of this amendment, cryptocurrencies will gain the same status as stocks and bonds as financial products and will be regulated under the Financial Instruments and Exchange Act.

According to Coinpost, this legislative change also introduces several new regulatory measures, including a ban on insider trading and mandatory annual financial disclosures for specific cryptocurrency issuers. Additionally, penalties and fines for unregistered underground operators have been significantly increased: the maximum prison term has been extended from 3 years to 10 years, and the upper limit for fines has increased from 3 million yen to 10 million yen.

20% Separate Taxation Coming in 2028

For investors, the most substantial benefit comes from the comprehensive overhaul of the tax system. Currently, Japan's National Tax Agency classifies cryptocurrency trading income as "miscellaneous income" under a progressive tax system, leading to potential tax rates as high as 55% for investors.

After the amendment, cryptocurrencies will adopt a "separate taxation" system, with the effective tax rate significantly reduced to around 20%. Additionally, the new system introduces a "loss carryforward" mechanism, allowing investors to carry forward investment losses from the current year for up to 3 years to offset future profits. This tax reform is expected to take effect in January 2028.

Paving the Way for Japan's Cryptocurrency ETFs

On the other hand, the legislation also lays a solid legal foundation for the issuance of cryptocurrency spot ETFs in Japan. Coinpost points out that the Japan Exchange Group (JPX) is gearing up, with the first batch of cryptocurrency asset ETFs issued by traditional financial institutions expected to be listed as early as 2027. However, the report also adds that Japanese regulatory authorities have not yet formally approved any Bitcoin spot ETFs.

This historic legislation is expected to be officially announced by the Japanese government soon and implemented within a year of the announcement. As for the specific implementation details, further clarification will be provided through Cabinet Office orders and financial regulatory guidelines.

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