I. Introduction Recently, with the opening of WebX 2025 in Tokyo, Japan once again attracted global attention from the crypto market. In fact, with the rapid development of blockchain technology and crypto assets, Japan has become a significant player in the global crypto asset market, boasting numerous technology developers and individual investors, as well as attracting many Web3 institutions to explore the future of digital finance in Japan. Driven by both technological innovation and risk control, Japan's crypto asset ecosystem is gradually maturing. According to the 2024 annual report of the Japan Virtual and Crypto Asset Exchange Association (JVCEA), the number of crypto asset accounts in Japan has exceeded 12 million, with user deposits exceeding 5 trillion yen. Among them, the holding rate of mainstream crypto assets such as Bitcoin and Ethereum has increased significantly, and institutional investors' interest in crypto assets is growing, with 57% of respondents believing that crypto assets will become mainstream in the future. Furthermore, public calls for regulatory transparency are growing stronger. These data collectively depict a market with broad awareness, diverse applications, and clear expectations regarding regulation. Against this backdrop, understanding Japan's crypto asset tax system and regulatory framework is both necessary for the compliant development of crypto companies and a key element for investors to understand market risks. This study will focus on two main lines: the basic tax system and the regulatory framework, presenting the interaction between the system and the market in the Japanese crypto-asset ecosystem, aiming to provide readers with a clear overview of the Japanese crypto-asset system. II. Basic Tax System and Crypto-Asset Tax Treatment in Japan is a country primarily based on direct taxes. The main current taxes include: corporate tax, personal income tax, consumption tax, liquor tax, customs duties, inheritance and gift tax, fixed asset tax, and stamp duty. This article will focus on the basic tax system of taxes strongly related to crypto-asset and the related tax treatment methods for crypto-asset. The main current taxes in Japan are shown in the table below: 1. Corporate Tax Japanese corporate tax is a tax levied on income generated from the business activities of legal entities, and is a type of income tax in a broad sense (Japanese income tax is equivalent to personal income tax, see below for details). Legal entities with headquarters or principal offices in Japan are resident companies; others are non-resident companies. For resident companies, all income, whether domestic or foreign, is taxable, while non-resident companies are only liable for taxes on their income earned within Japan. Regarding the calculation of taxable income, a company’s income is the sum of all sources, and there is no specific requirement to distinguish between income types.The standard corporate tax rate is 23.2%. For corporations with registered capital of ¥100 million or less, a 15% rate applies to income up to ¥8 million (however, this preferential rate increases to 17% if the company's taxable income exceeds ¥1 billion). 2. Income Tax: Income tax is levied on personal income. In Japan, permanent residents are taxed on their worldwide income. Non-residents are taxed only on their income originating in Japan. Non-permanent residents are taxed on their income other than foreign income not remitted to Japan (which may include certain capital gains), and may also be taxed on a portion of their foreign income paid to or remitted to Japan. Japan categorizes taxpayers' taxable income into ten categories, each calculated separately: wages and salaries, interest income, dividend income, business income, real estate income, retirement income, transfer income, forestry income, one-time income, and miscellaneous income (income not covered by the first nine categories is included in miscellaneous income under current Japanese tax law for individuals with cryptocurrency assets). When calculating personal income tax, each person's taxable income should be determined and summarized. Necessary expenses should be subtracted from the income amount, and income deductions should be made according to relevant regulations to obtain the taxable income. Finally, the individual's taxable income for the year should be calculated based on the applicable tax rate. The current Japanese national personal income tax rate table is as follows: 3. Consumption Tax Japan's consumption tax is levied when a company transfers goods, provides services, or imports goods into Japan. The general tax rate is 10%, but a lower rate of 8% applies to food and beverages (excluding consumption in restaurants and alcoholic beverages) and newspaper subscriptions that meet certain conditions. Exports and certain services provided to non-residents are subject to a zero tax rate. Certain transactions, such as the sale or lease of land, the sale of securities, and the provision of public services, are exempt from taxation. 4. Inheritance Tax and Gift Tax Inheritance tax is levied on property transferred upon a person's death. Inheritance tax applies to assets in various forms, including cash, savings and deposits, stocks, and other financial assets. The taxpayer for inheritance tax is an individual who acquires property through inheritance or bequest. Inheritance tax rates are set for each heir's inheritance of property exceeding a certain threshold. A progressive tax rate ranging from 10% to 55% applies based on the size of the taxable estate. See the table below for specific rates. Gift tax is levied on property transferred through a gift. Gift tax generally supplements inheritance tax.In Japan, gift tax applies to property acquired through gifts within one year, even if acquired from different donors, with the value combined for taxation. The taxpayer for gift tax is the individual acquiring the property through a gift. For corporations acquiring property through gifts, a corporate tax is levied. The object of gift tax is the property acquired through a gift. This property includes all things and rights that can be the object of property rights. There are two methods of assessing gift tax: "annual taxation" and "actuarial taxation upon inheritance" (an integrated inheritance and gift tax system). The annual taxation system applies a progressive tax rate ranging from 10% to 55%. 5. Tax Treatment of Crypto Assets 6. Reform Trends In December 2024, the Japanese government released the "Tax Treatment of Crypto Assets, etc. (FAQ)," compiling frequently asked questions regarding the tax treatment of crypto assets and electronic payment methods, including income tax, corporate tax, consumption tax, gift tax, and inheritance tax. Specific treatment methods can be found in the relevant documents. Recently, the JCBA and JVCEA collaborated to compile a request for tax reform related to crypto assets in fiscal year 2026, which was submitted to the government for review on July 30. Therefore, this section will focus on the analysis and comparison between the proposed Japanese crypto asset tax reform and the current system, as shown in the table below: According to the table, the current progressive tax rate is very unfriendly to high-frequency traders and high-net-worth investors, while the proposal would significantly reduce the tax rate to 20% and allow loss carry-forward, which would be conducive to attracting funds back to the Japanese market. At the same time, deferred taxation of cryptocurrency transactions would greatly simplify reporting and recording obligations, reducing the pressure of tracking a large amount of transaction details. Furthermore, the reduction of tax barriers for donations and inheritances may promote the application of crypto assets in social donations and wealth transfer. These proposals from Japan are clearly moving towards attracting the crypto industry and capital. III. Basic Research on Cryptocurrency Regulation in Japan 1. Basic Framework Japan was one of the first jurisdictions globally to incorporate cryptocurrency trading into its statutory financial regulatory system, establishing a relatively comprehensive dual-track regulatory framework through the Payment Services Act (PSA) and the Financial Instruments and Exchange Act (FIEA). The former focuses on the registration of cryptocurrency exchange operators, asset custody, anti-money laundering and counter-terrorism financing (AML/CFT), and user protection; the latter establishes strict information disclosure, market manipulation prohibition, and investor protection systems for investment assets such as security tokens (STOs), investment token ICOs, and derivatives.The two laws have a division of labor while also being linked through specific provisions, ensuring clear compliance boundaries for crypto assets across payment and investment, and from spot trading to derivatives. Since 2018, Japan has implemented a mandatory registration system for crypto asset trading platforms, and through multiple rounds of amendments in 2019 and 2022, it has raised requirements regarding cold wallet storage ratios, advertising standards, and cross-border transfer information disclosure. The FSA maintains a high-pressure stance against unregistered operations and closely monitors emerging forms such as DEXs, stablecoins, and staking, indicating a continued expansion of regulatory scope. Under this framework, the Japanese Financial Services Agency (FSA) is the national-level competent authority. In addition, the JVCEA (Japan Virtual Currency Exchange Association) and JCBA (Japan Crypto Asset Business Association) also play important roles in the Japanese crypto asset industry. The JVCEA is an industry self-regulatory organization spontaneously established by major virtual currency exchanges. With the development of the Japanese crypto market and the emergence of related risk events, the Japanese Financial Services Agency (JFSA) officially authorized the JVCEA as an official industry organization with self-regulatory responsibilities in 2018. This means that JVCEA not only sets standards for member exchanges in areas such as operation, risk control, and anti-money laundering, but also assists the government in implementing regulation and responding promptly to industry changes and risks. JVCEA has not only improved industry transparency and compliance, but has also become a key driving force for exchanges to obtain legal operating qualifications, protecting investor interests and rebuilding market confidence. Unlike JVCEA, which focuses on exchanges and regulatory self-regulation, JCBA focuses more on promoting the overall development of the crypto asset industry. JCBA members include diverse institutions such as wallet service providers, blockchain companies, and market participants. The association mainly promotes industry innovation and ecosystem improvement through industry exchanges, technical research, policy recommendations, and public education. JCBA plays a bridging role in communication with regulatory agencies, tax policy negotiations, standard setting, and addressing emerging industry issues, providing support for industry self-regulation, enhancing consensus between the government and the market, and policy implementation. The two organizations form a division of labor and complementarity, jointly promoting the standardized, healthy, and diversified development of the Japanese crypto asset industry. 2. Legal Evolution Japan is one of the first countries to establish a regulatory framework for crypto assets (formerly known as virtual currencies). As early as 2016, Japan took the lead in responding to international demands for anti-money laundering (AML) and counter-terrorist financing (CFT) by amending the Payment Services Act (PSA), and also made institutional responses to the bankruptcy of domestic operators providing cryptocurrency-fiat currency exchange services.The 2016 amendment (implemented in April 2017) established a registration system for relevant service providers and introduced a series of measures, including identity verification during account opening, full explanation of transaction terms to users, and implementation of separate management of customer assets and proprietary assets, thus establishing fundamental regulations in both anti-money laundering and consumer protection. With the development of the cryptocurrency market, some new risks and problems have gradually emerged: such as the abuse of highly anonymous crypto assets, insufficient internal management of some cryptocurrency exchange service providers (hereinafter referred to as "exchange service providers"), incidents of leakage or misappropriation of cryptocurrency assets and funds entrusted by users, and excessive advertising. In light of these circumstances, Japan revised the PSA and FIEA again in 2019 (this amendment came into effect in May 2020, hereinafter referred to as the "2019 amendment"). The main contents of the 2019 amendment include: requiring exchange service providers to report changes in the crypto assets they operate in advance, rather than afterward; requiring the use of cold wallets to store user crypto assets in principle; and establishing regulatory rules regarding advertising and solicitation. Meanwhile, to address new types of trading activities and improper transactions, Japan explicitly included derivatives trading involving crypto assets under its regulation and stipulated that ICO tokens granting profit distribution rights should be subject to the FIEA (Financial Action Task Force). Price manipulation and other unfair trading practices were also prohibited. Building on this, Japan revised the Law on Prevention of Transfer of Proceeds of Crime (effective June 2023, hereinafter referred to as the "2022 Amendment") again in 2022, introducing a "Travel Rule" based on the recommendations of the Financial Action Task Force (FATF). This rule requires that when exchange service providers transfer crypto assets on behalf of users, they must transmit the identity information of both the sender and receiver to the receiver's exchange service provider. In 2025, the Japanese government submitted a draft amendment to the PSA (unless otherwise specified, "amendment" hereafter refers to this draft amendment) to the Diet. This includes: granting regulatory authorities the power to require exchange operators to retain assets within Japan to ensure the return of assets to domestic users in extreme circumstances such as bankruptcy; and adding a new category of intermediary business specializing in facilitating the buying, selling, or exchanging of crypto assets. 3. Important Rules Furthermore, if crypto assets possess the characteristics of securities, they are subject to stricter disclosure requirements and regulations governing market manipulation and fraud under the Financial Instruments and Exchange Act (FIEA). 4.Revision Updates (1) Introduction of Domestic Asset Retention Orders for Crypto Asset Exchanges Previously, Japanese authorities were concerned that crypto asset exchanges handling spot trading might transfer their assets overseas, thereby harming users' interests in the event of bankruptcy or other situations. The relevant amendment allows the Japanese government to issue "Asset Retention Orders" to prevent such asset outflows and ensure the safety of users' assets. (2) More Flexible Management Requirements for Trust-Based Stablecoin Reserves Previously, stablecoin issuers were required to hold all reserves in the form of demand deposits. The amendment allows issuers to hold up to 50% of their reserves in the form of low-risk assets such as government bonds or redeemable time deposits. This change is expected to enhance the international competitiveness of stablecoins issued in Japan. (3) New Category for Crypto Asset Brokerage Business Previously, institutions that only engaged in crypto asset intermediation were required to register as full-fledged exchanges, which had a high entry threshold. The amendment adds a "brokerage business" category, allowing intermediaries to operate under an independent regulatory framework, lowering the entry threshold, and making it more in line with industry realities, which will help promote the entry of new service providers into the market. This measure is consistent with regulatory practices in other financial sectors. (4) Regulation of cross-border payment services In the past, cross-border payment services were basically unregulated and did not require a fund transfer business license, but there was a risk of them being abused for illegal gambling, investment fraud and other purposes. The new regulations have strengthened the regulation of such services. The core of the new regulations is to combat unregistered illegal fund transfers. For high-risk businesses, consumer protection and anti-money laundering (AML) measures will be further strengthened. Payment services that do not directly facilitate the transaction of goods or services will be included in the regulation of fund transfer businesses; while low-risk services such as platforms that directly participate in transactions or third-party custody that are already subject to other laws are expected to be exempted. Industry groups such as the Japan New Economy Association are concerned that excessive regulation may harm the digital payment industry, and therefore call on the new rules to focus on actual risks and avoid impacting the ecosystem of electronic payments, points settlement and other similar systems. The subsequent release of regulatory details and the impact on the industry and innovation need to be closely monitored. (5) Improved speed of user refunds when fund transfer institutions go bankrupt In the past, even if user assets were guaranteed by banks or in trust, the refund process still required government leadership and took at least 170 days. The new amendment introduces a direct refund path, whereby banks or trust institutions can directly return funds to users without going through the original procedures. This initiative enhances consumer protection, effectively improves the efficiency of financial services, and enables funds to be returned to users more quickly and safely when institutions encounter problems.IV. Conclusion In summary, Japan has gradually improved its tax and financial regulatory framework in the cryptocurrency sector. On the one hand, the tax system centered on the NTA (National Tax Authority) has detailed regulations on income tax, corporate tax, inheritance tax, and gift tax for crypto assets. Although the current system still restricts investment activity to some extent in terms of tax rates, loss carry-forward, and tax timing, the proposed tax reform for fiscal year 2026 clearly moves towards tax reduction, transaction facilitation, and public welfare friendliness. On the other hand, the financial regulatory framework led by the FSA (Financial Services Authority), through the Payment Services Act, the Financial Instruments and Exchange Act, and the supporting management of the Japan Corporate Regulatory Commission (JVCEA), has enabled Japan to be among the first in the world to establish a compliance system covering the entire chain of spot, derivatives, and stablecoins, and it continues to iterate to address new technologies and business models. This steady optimization of the tax system and regulation not only responds to the domestic market's demand for transparency, efficiency, and international alignment, but also reflects Japan's development strategy of deeply integrating crypto assets with the Web3.0 strategy. In the future, with the implementation of separate taxation, the postponement of taxation on cryptocurrency transactions, the advancement of new policies such as inheritance and donation incentives, and the improvement of more flexible market access and consumer protection mechanisms, Japan is expected to enhance its competitiveness in the global crypto asset and blockchain industry chain while maintaining a high level of risk control. This will attract more capital, technology, and entrepreneurial projects to its market, thereby further consolidating its leading position in the Asia-Pacific and even global digital finance landscape.