Business 15 February 2018

Gerald Fenech

Japan’s crypto investors wary of the taxman

With the recovery in cryptocurrencies now seeming to be well on the way, some investors are turning their heads to another potential problem—the taxman. In Japan that’s a particular issue since all cryptocurrency investments are considered as property, meaning they are liable to the taxes that property attracts.

Japan’s cryptocurrency traders are bracing for the oncoming Japanese tax season, which runs from February 16 until March 15.

All cryptocurrency earnings in the Asian country are required to be reported as ‘miscellaneous income,’ incurring capital gains taxation of between 15% and 55% due to virtual currencies being legally classified as ‘property.’

Some traders have criticized the income brackets chosen by the National Tax Agency, with the top bracket applying to payers with an annual income of JPY40 million yen (approximately $375,000). By contrast, the top bracket is charged only 20% for income derived from foreign exchange or stock market trading. Now if that seems fair, I really don’t know what isn’t.

Japanese crypto investors look to alternative places to declare their taxable income

The heavy taxes faced by large-scale bitcoin traders have prompted a number of Japanese cryptocurrency traders to explore relocating to jurisdictions offering more lenient taxation on earnings derived through virtual currencies. There are several upstarts in this respect and these may include EU member states such as Malta and Cyprus, while the usual tax havens in the Caribbean are always an attractive proposition.

According to Bloomberg, the chief executive of Shiodome Partners Tax Corp, Kengo Maekawa, indicated that “a handful of cryptocurrency-rich investors have already left Japan.” Maekawa stated that his firm has recently experienced an increase in clients in their 30s and 40s seeking tax advice on income derived from cryptocurrencies. This is in line with the average cryptocurrency investor age bracket.

Some traders have also complained that certain aspects of Japan’s present tax requirements regarding legacy Bitcoin, or SegWit1X (BTC), and other cryptocurrencies are unclear. Hiroyuki Komiya, the manager of a Tokyo-based distributed ledger technology consulting firm, said: “The government hasn’t clarified certain details, so you’re left unsure whether you’ve got it right or not.”

Komiya stated that he was able to reduce his taxable income by “a few million yen” when using an “overall average” rather than a “moving average” when conducting calculations. That could have significant impact on the tax bill so other crypto currency investors should look at this option in the short to medium term.

Note: Tokens on the Bitcoin Core (SegWit) chain are referenced as BTC coins; tokens on the Bitcoin Cash ABC chain are referenced as BCH, BCH-ABC or BAB coins.

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