Japan Income Tax on Virtual Currencies
With great power comes great responsibility
What is easily forgotten among all the positive commentary about Japan leading the world in providing a safe, regulated environment for the trading of virtual currencies is that with such regulatory framework, which has by now resulted in sixteen crypto-currency exchanges receiving the official stamp of approval by the Financial Services Agency (FSA), also comes an equally advanced definition of individual income tax obligations.
On a transaction basis, however, relief came with the “Cabinet Order for Partial Revision of the Order for Enforcement of the Consumption Tax Act”, effective July 1, 2017, exempting virtual currency transactions from consumption tax.
The National Tax Agency (NTA) individual taxation section released “Information about the calculation method etc. of income on virtual currency” on December 1st, 2017. Broadly speaking, if income obtained from virtual currency is earned at the individual level, this is treated as miscellaneous income and subject to tax on aggregate income. As such, it is treated exactly the same as gains/losses from foreign currency transactions. Income is calculated as gross receipts less necessary expenses, without any consideration for the holding period, and taxed at the personal income rate, which currently tops out at a 40% national rate (plus applicable local taxes) for annual income over JPY 18m. For comparison, capital gains on stocks are subject to a 20.315% rate (15.315% national including surcharges, and 5% local tax rate).
The NTA document is quite clear as to what constitutes a taxable event and provides detailed examples:
- Sale of virtual currency
- Purchase of goods in virtual currency
- Exchange between two virtual currencies
- Margin transactions on virtual currencies
- Virtual currency mining
It also provides instructions for the calculation of the acquisition cost of virtual currencies, including the event of a hard fork/branching.
Please keep detailed records and consult with a tax professional. And always keep your private keys safe!