Japan reclassifies crypto as a financial asset, paves way for tax cuts

National Diet Building of Japan (Parliament). (Wiiii/Wikimedia Commons) — Japanese lawmakers passed a landmark crypto bill classifying digital assets as a financial product. (Wiiii/Wikimedia Commons)

Japan reclassified cryptocurrencies as financial instruments, shifting them from a payments-focused regime to an investment framework under amended financial and payments laws set to take effect in 2027.
The legislation paves the way for potential spot bitcoin ETFs, increases penalties for unregistered crypto operators, and imposes stricter insider-trading, disclosure and investor-protection rules on issuers and exchanges.
Lawmakers also approved a plan to cut the top tax rate on crypto income from as high as 55% to a flat 20% starting in 2028.

Japan reclassified cryptocurrencies as financial instruments, a structural shift that establishes the legal framework for separate taxation of crypto assets and for future crypto exchange-traded funds (ETFs).

The legislation approved by Parliament on Wednesday amends the Financial Instruments and Exchange Act and the Payment Services Act (PSA). It shifts crypto from a framework in which it was primarily treated as a payment tool to one that treats it as an investment alongside other financial instruments. The new rules are expected to take effect in 2027.

The new framework also removes a key legal hurdle for future spot bitcoin exchange-traded funds (ETFs), although lawmakers did not approve any ETF products. Financial Services Agency officials said Japan will now consider developing a regulatory framework for crypto ETFs.

The legislation raises the maximum prison term for unregistered crypto operators from three years to 10 years and increases the maximum fine from 3 million yen ($18,500) to 10 million yen. It also introduces stricter insider-trading rules and expands disclosure requirements for crypto issuers and exchanges.

Lawmakers also approved the framework for reducing the current crypto tax burden from as much as 55% to 20%, although the lower rate is not expected to take effect until 2028.

The tax-cutting proposal was introduced late last year with the support of the government and the ruling coalition. That new structure splits the 20% tax between the national government and regional authorities at 15% and 5%, respectively.

The crypto rules will require cryptocurrency issuers to provide regular disclosures, while exchanges will face stricter investor protection and reporting requirements.

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