Japan reclassifies crypto as securities, sets 20% tax

Japan’s cabinet approved a bill on April 10 to reclassify certain crypto assets as financial products and change how they are taxed and regulated.

The legislation would shift oversight of crypto from the Payment Services Act to the Financial Instruments and Exchange Act, bringing crypto under the same legal framework as stocks and other investible assets. If the Diet passes the bill during the current session, the law is expected to take effect in fiscal year 2027.

Under the proposed amendments, about 105 crypto assets would be treated as financial instruments. Crypto transactions would be subject to insider trading controls that now apply to equities, and issuers would be required to disclose key information at least once a year. Registered businesses would be renamed from “crypto asset exchange businesses” to “crypto asset trading businesses,” and the Financial Services Agency would oversee the new regime.

Tax rules would change from a progressive system, which could reach rates of about 55%, to a flat 20% tax on profits from crypto transactions. The government says the flat rate is intended to clarify the tax treatment of crypto income and create a predictable regime for investors and institutions.

Penalties for illegal activity would be strengthened. The bill would raise maximum prison sentences for violations from three years to up to 10 years and increase fines from roughly 3 million yen to as much as 10 million yen. The changes aim to tighten enforcement against market abuses.

The Financial Services Agency has proposed allowing banks and other institutional investors to hold crypto for investment purposes, enabling custody by traditional financial institutions. Regulators expect that permitting bank custody will support the integration of crypto into mainstream financial markets and allow development of products such as exchange-traded products.

The government plans to legalize crypto exchange-traded funds by 2028. Several major domestic financial groups are developing crypto-linked exchange-traded products in anticipation of new rules.

Japan estimates its domestic crypto market includes more than 12 million verified users and about $34 billion in assets held under local custody. The bill would change the legal framing of crypto from digital payment tools to investible financial instruments and align market rules, disclosure and enforcement across asset types.

Finance Minister Satsuki Katayama described the bill as a way to expand the supply of growth capital and to ensure fairness, transparency and investor protection in the market.

Japan introduced formal crypto rules after the Mt. Gox collapse and has regulated crypto under the Payment Services Act. The current bill would move crypto further into the regulated investment market with disclosure requirements, insider trading prohibitions and increased penalties.