The Japan FSA proposes to amend tax laws and allow domestic cryptocurrency ETFs starting from the 2026 fiscal year.
The Financial Services Agency of Japan (FSA) plans to propose a comprehensive review of how current tax laws treat cryptocurrency assets for the fiscal year 2026. This move aims to align the taxation of this asset type more closely with listed stocks, according to a report by Nikkei.
The proposal expected to be announced at the end of August will include transferring profits from cryptocurrency to a separate tax group, applying a flat tax rate of 20%. Industry businesses also propose adding a mechanism for loss carryforward over three years as part of the tax changes.
Currently, income from cryptocurrency is classified as 'other income' and is subject to progressive taxation of up to 55%, excluding local taxes. The implementation of a flat tax rate of 20% will significantly reduce the tax burden on investors and create a more favorable environment for the development of the digital asset market in Japan.
Impact on ETFs and the legal framework
The FSA's proposal will also facilitate Japanese companies in launching domestic cryptocurrency exchange-traded funds (ETFs), as the country aims to enhance the competitiveness of its digital finance sector.
In addition to tax amendments, the FSA also plans to submit a bill in 2026 to bring cryptocurrency assets under the purview of the Financial Instruments and Exchange Act. Accordingly, cryptocurrency assets will be considered 'financial products' rather than 'payment instruments' regulated under the Payment Services Act as is currently the case.
This change in the legal framework will open up opportunities for the development of more complex financial products based on cryptocurrency, including ETFs and derivatives, helping Japan to better compete with other developed financial markets in the region.
This move comes as the FSA also intends to approve the first domestically regulated stablecoin, JPYC. JPYC, issued by a fintech company of the same name based in Tokyo, aims to issue 1 trillion yen (equivalent to 6.78 billion USD) in stablecoins over three years, reflecting Japan's strong commitment to building a comprehensive and competitive digital finance ecosystem.