Trust Bloomberg Tax for the international news and analysis to navigate the complex tax treaty networks and global business regulations.
By Sony Kassam
Japan’s strict tax laws on cryptocurrencies like bitcoin may not stay that way.
The government will likely loosen those rules as it begins to address treatments more similar to stocks, industry advisers told Bloomberg Tax. Relaxed tax rules would encourage growth for the cryptocurrency industry in Japan.
“The overall tax treatment of digital currencies in Japan should conceivably become more favorable in time, once precedents have successfully been set in other developed nations,” said Martin King, a managing partner at Tyton Capital Advisors in Tokyo.
And more growth in the industry would be notable considering how popular cryptocurrency already is in Japan.
Japan accounts for nearly 60 percent of the global transaction volume for bitcoin, according to Japan’s Financial Services Agency. The global 24-hour transaction volume of bitcoin was about $7 billion as of early July 24.
Since March, 3.5 million users have traded cryptocurrencies as assets, the FSA reported.
Investors in Japan have to declare their profits from cryptocurrency transactions in filings to the National Tax Agency and face tax rates ranging from 15 percent to 55 percent on the profits—"an obstacle for users in Japan,” said Takashi Sato, a partner at KPMG Japan.
Investors with earnings of more than 40 million yen ($359,309) are taxed with a 45 percent national tax and a 10 percent local tax. That rate has prompted some investors to relocate to countries with relaxed tax rules.
Cryptocurrencies have created many new high-net-worth individuals, King said, and so “tax domicility inevitably becomes a consideration.” “Wealthy people will always migrate to the country that treats them the best,” he said.
The NTA’s “tight grip serves to monetise the populace of individual investors who have made meteoric gains over the recent years,” King said in an email July 11.
“From individual investors to accountants, the ubiquitous view of the current tax framework for cryptocurrencies in Japan is that the system is unfair,” King said.
In 2017, Japan ruled that capital gains from cryptocurrency transactions are “miscellaneous income” with “general taxation.” This means gains from cryptocurrencies are part of ordinary income and are treated differently than gains from stocks or foreign exchange trading.
The government’s cryptocurrency tax stance “can only be described as punitive,” King said, because “unlike gains made through stocks or real estate, losses in other assets cannot be used or carried to offset and reduce the tax liability for gains.”
Conversely, a flat tax rate of 20 percent is applied to all income levels for gains from stocks or FX, which are taxed separately from ordinary income and are treated as miscellaneous income but with “separate declared taxation.” Taxpayers in Japan also have to pay a temporary 2.1 percent surtax on their national income tax until 2037, Sato said, to fund reconstruction efforts after the 2011 earthquake, making the total tax rates 15.105 to 55.945 percent.
The national assembly in June mulled applying tax treatment of stocks and FX to cryptocurrency transactions, said Kenji Yanagisawa, founder and partner at Yanagisawa and Co. in Tokyo.
And digital currency associations such as the Japan Virtual Currency Exchange Association, the Japan Blockchain Association, and the Japanese Cryptocurrency Business Association have discussed fairer alternatives, he said.
Cryptocurrency investors are frustrated that buying something with their tokens triggers a capital gains tax, Yanagisawa said in an email July 17. They’re also frustrated “with the statutory calculation method because it is very, very complicated and impracticable.”
The two key takeaways from conversations about the tax system are that a 20 percent flat tax rate would be fairer, and transactions should be non-taxable until gains are exchanged for fiat currencies, Yanagisawa said. That means exchanging some digital currencies for other digital currencies like bitcoin and monacoin—Japan’s native digital currency—should be non-taxable.
“As the regulations related to gain from cryptocurrencies is quite new and the environment around cryptocurrencies is rapidly growing and changing, we expect that the tax authorities will release new regulations or update current regulations in the future,” Sato said in an email July 19. “However, there are no further details available.”
Practitioners said rule changes could take years. “I hope they change inefficient rules, and build a better future,” Yanagisawa said.
To contact the reporter on this story: Sony Kassam in Washington at email@example.com
To contact the editor responsible for this story: Kevin A. Bell at firstname.lastname@example.org
Copyright © 2018 The Bureau of National Affairs, Inc. All Rights Reserved.
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to email@example.com.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to firstname.lastname@example.org.
Put me on standing order
Notify me when new releases are available (no standing order will be created)