Business / Financial Markets | Deep Dive

Cryptoprofits are taxable — have you filed?

by Kazuaki Nagata

Staff Writer

Many people probably gambled on the cryptocurrency investment boom last year, and some might even have been lucky enough to earn a fortune. But any profits come at a price.

In December, ahead of the annual tax return season from Feb. 16 to March 15, the National Tax Agency released guidance on how it taxes cryptocurrency profits.

Here are some questions and answers about how virtual currency is being taxed in Japan.

Who is obligated to pay tax on virtual-currency investments?

Basically, if you earn ¥200,000 or more from cryptocurrency trading, you must pay tax. Such profits are considered miscellaneous income.

One’s total income is taxed in seven bands, depending on the amount.

The lowest band, covering those who earn ¥1.95 million or less, is taxed at 5 percent. The highest band, for those who earn more than ¥40 million, is taxed at 45 percent. Your income is also subject to a residential tax of 10 percent. Together, the maximum tax rate is 55 percent.

Do I have to pay tax even if I am only holding coins and not trading them?

According to current tax agency rules, no.

What if I buy something with virtual currency?

You still have to pay tax. Bitcoin is accepted by some stores in Japan and is most likely to be the currency of choice for purchasing products.

For instance, if you buy a bitcoin for ¥200,000 and then use it to purchase a ¥1 million item after the coin itself becomes worth ¥1 million, the tax rate is calculated by subtracting the price of the bitcoin when it was acquired, from the price of the product when it was purchased. So the amount of income you would need to report is ¥1 million minus ¥200,000, or ¥800,000.

How about trading one kind of virtual currency for another?

This scenario, too, is subject to taxation, and the calculation used is basically the same one that would apply if you had purchased a real product.

Yasuhiko Sugiyama, a tax accountant knowledgeable in tech-related tax matters, said this is something many people are unaware of because this kind of transaction does not involve real money.

I lost money on a cryptocurrency investment. Can I deduct any losses?

No. Under the current rules, only losses from real estate, business, asset transfers and forestry income can be deducted from income.

What will happen if I don’t pay tax?

This will result in penalty taxes other than what is usually assessed when tax payers refuse to pay.

These penalties could add as much as 20 percent to what you were originally supposed to pay, plus a penalty for the delay.

Sugiyama warned that those who profit from cryptocurrency investments should not think they can get away without paying tax because regulation has enabled the tax agency to identify account holders from reports compiled by the exchanges.

Even if you don’t keep records of any transactions, a rough profit figure can be calculated simply by subtracting the amount you invested from your total at the end of December.