Crypto Tax Comparison: Japan vs. United States

Japan and the United States have very different ways of taxing cryptocurrency. This article breaks down those differences, comparing tax rates, taxable events, and how each country classifies cryptocurrencies.

Japan’s National Tax Authority (NTA) classifies cryptocurrencies as miscellaneous income, while the United States Internal Revenue Service (IRS) treats them as property. This fundamental difference leads to variations in how crypto-related activities are taxed.

Tax Rates and Taxable Events: A Closer Look

Let’s take a closer look at how these classifications translate into tax rates and taxable events in each country.

Japan classifies cryptocurrencies as miscellaneous income, according to the National Tax Authority (NTA). Crypto earnings are subject to progressive income tax, with rates ranging from 5% to 45%. An additional 10% inhabitant tax applies, bringing the total tax rate to between 15% and 55%.

The United States, on the other hand, treats cryptocurrencies as property for tax purposes. The Internal Revenue Service (IRS) typically applies income tax and capital gains tax, depending on the transaction and holding period.

In Japan, any crypto earnings over ¥200,000 ($1,600) must be reported to the tax authorities. This includes profits from trading, mining, staking, and airdrops. In the US, taxable events include trading, selling, or spending crypto. Tax rates vary depending on the holding period and type of income.

Crypto Tax Rates: Japan vs. USA

Japan uses progressive tax rates for cryptocurrency income. The total effective tax rate can be as high as 55% for those with high incomes. Japanese businesses face a 30% corporate tax on unrealized crypto gains, although reforms may eliminate this in 2024. In the United States, the tax burden depends on the holding period. Short-term capital gains (less than one year) are taxed at federal income tax rates, which range from 10% to 37%. Long-term capital gains (more than one year) have lower tax rates, between 0% and 20%.

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Unlike Japan, the US does not currently tax unrealized crypto gains for businesses. However, the Biden administration has suggested applying the “wash sale rule” to cryptocurrency, which would prevent taxpayers from claiming tax losses on crypto sales unless they sell the assets permanently.

Taxable Events in Both Countries

Japan taxes a wide range of crypto transactions, including trades between crypto and fiat currency, exchanging one cryptocurrency for another, and using crypto as payment. Gifting cryptocurrencies and receiving payments in Bitcoin or other digital currencies are also taxable. The tax is calculated based on the fair market value of the crypto in Japanese Yen at the time of the transaction. Income from mining and staking must also be reported.

In the United States, capital gains tax applies when selling, trading, or using crypto for goods or services. The tax is based on the increase in value since the purchase. Income from mining, staking, and airdrops is considered ordinary income and must be reported. However, gifting crypto in the US is not immediately taxable unless the value is more than the annual gift tax exemption.

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Both Japan and the United States offer tax exemptions for certain cryptocurrency activities. Simply holding cryptocurrency or moving it between wallets is not a taxable event in either country. Additionally, buying cryptocurrency and donating it to a recognized nonprofit organization is tax-free in Japan. In the US, buying and holding crypto is also not taxed. Transferring crypto between wallets and giving it as a gift (below the exclusion limit) are also non-taxable.

Potential Future Changes

Both countries continue to adjust their crypto tax laws. Japan has recently proposed eliminating taxes on unrealized crypto gains held by companies. The US may introduce new regulations, such as the wash sale rule for crypto, in 2025. Regulatory authorities in both countries are exploring ways to update their tax systems to reflect the evolving nature of digital assets.