Written by Thomas Y. Lu, CFP, Martin Phillips & Sean Gardner | September 1, 2026 I 6 minutes read
Historically in Japan, crypto-asset exchanges have been regulated mainly under the Payment Services Act (PSA), reflecting crypto assets’ role as a means of payment. The current shift is moving crypto’s regulatory home to the Financial Instruments and Exchange Act (FIEA). By positioning crypto assets under the FIEA as financial products distinct from traditional securities, the Japanese government is opening the door to tax reform.
Legislative Progress
Japan’s House of Representatives (Lower House) passed the FIEA amendment bill on June 11, 2026, after committee approval on June 10, 2026. Following this, it advanced to the House of Councillors (Upper House), which passed the bill in plenary session on July 15.
While Diet passage was completed on July 15, 2026, the law was subsequently promulgated on July 23, 2026, as Law No. 64. The main crypto-related regulatory provisions are scheduled to take effect on a date to be set by Cabinet Order within one year of promulgation – i.e., by July 23, 2027 – unless an earlier date is specified. The related tax reform is separate but aligned with the FIEA reform. Under current expectations, the new tax rules would apply from January 1 of the year following the year in which the amended FIEA comes into force, pointing to a likely January 1, 2028, start date for individual tax treatment. Until the relevant effective dates, Cabinet Orders, Cabinet Office Ordinances, and tax guidance are finalized, existing tax treatment generally continues to apply.
Tax Shift
The shift to the FIEA lays the regulatory groundwork for changing crypto’s tax classification from “miscellaneous income” to “separate taxation” through a separate but related tax reform measure. This regulatory shift supports the highly anticipated tax reform that the crypto industry in Japan has fought for over nearly a decade. Here are the following changes:
| Feature | Current Tax Treatment (PSA) | Expected Separate Tax Regime (FIEA) |
| Tax Classification | Miscellaneous Income | Separate Taxation |
| Tax Rate | Progressive (up to 55%) | Flat 20.315% Rate |
| Loss Offset | Allowed (crypto losses offset crypto gains within the same year but cannot offset other income types like salary or business earnings). | Allowed (offset crypto gains with crypto losses; 3-year carry-forward for eligible losses). |
| Loss Carry-Forward | None (losses expire at the end of the calendar year) | Yes (3-year carry-forward, can offset future gains with past losses) |
Crucial Limitations
Before celebrating the 20.315% flat tax rate, there are a few strict caveats that credible finance reports highlight:
- The separate tax treatment is expected to be limited to specified crypto assets handled by financial institutions and exchanges registered with the Financial Services Agency (FSA) of Japan
- For clients who trade on unregistered, overseas exchanges, their gains may not qualify for the 20.315% separate taxation rate and could still be subject to the old progressive tax rate (up to 55%), with such income treated like current miscellaneous income (i.e., aggregated capital gain income kept separate from other capital gains, with no special ¥500,000 deduction, no income reduction by half for long-term gains, and no offset of crypto loss against other capital gain income).
- FIEA rules strictly regulate exchanges and issuers. Self-custody remains entirely legal and unchanged, but to realize/sell assets, clients must do so via a registered platform to claim this favourable tax treatment
Broader Regulatory Consequences
Moving crypto under FIEA doesn’t just pave the way for lower taxes, it introduces several institutional-grade rules to the Japanese market:
- Crypto-specific insider trading rules are introduced under the amended FIEA framework. Trading on non-public information is strictly prohibited
- Entities issuing tokens will face annual disclosure obligations, information disclosure and, in certain cases, audit certification
- Positioning crypto as a financial instrument under the FIEA opens the legal door for asset managers to launch crypto ETFs in Japan; something that was impossible under the PSA.
Summary
Japan’s transition of crypto-asset regulation from the PSA to the FIEA positions crypto assets as financial products distinct from traditional securities. This regulatory shift is linked to a separate but highly anticipated tax reform that is expected to move eligible crypto-asset transactions from progressive miscellaneous-income taxation to separate taxation at 20.315%, with limited loss offset and a three-year carry-forward for eligible losses. However, the favorable treatment is expected to be limited to eligible transactions involving crypto assets listed on Japanese licensed exchanges and sold through those exchanges. Transactions through overseas exchanges, decentralized exchanges, or private wallet arrangements may remain outside the new regime and continue to be subject to current progressive taxation. The main regulatory transition is expected during 2027, with individual tax treatment likely beginning on January 1, 2028, depending on the final effective date and implementing rules.
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