Select Page

The reason why you can’t earn a lot from virtual currencies in Japan

The reason why you can’t earn a lot from virtual currencies in Japan

In the last several months, I’ve been asked if I own virtual money by a lot of people. In Japan, it’s boomed especially among the millennial generation.

In addition, a large number of comedians, bloggers, athletes and celebrities have speculated in various currencies.

As you know, a majority of the virtual currencies (VCs) greatly increased in value last year. For instance, the bitcoin price went up from ¥130,000 (April) to ¥2,300,000 (December) in 2017, meaning became 18 times within 8 months.

Furthermore, there’s even another one whose value became 500 times within a year, which is crazy.


Sponsored Link

Is owning VCs gamble?

Pachinko in Japan

As for myself, I’ve never tried it and won’t try it because I’m not good at gambling …. well, then many people might claim that Bitcoin, Ethereum, Ripple, Bitcoin Cash, etc are not gamble.

True. the new technology (blockchain) is very interesting and must have a greater likelihood that it would change the financial industry. In fact, I also agree with the realization of cashless society because I got used to the Swedish society.

Even so, I regard VCs as nothing more than speculation so far since the volatility is too wide. However, again, the great technology should be considered with its speculativeness separately, I think.

So, it’s great to know that a lot of people have been excited about it around the world (a lot of negative consequences can be seen, though).


So, why am I talking about VCs?

I thought I would never get involved in it, but just recently, a friend of mine has asked me to figure out its taxation policy in Japan, and explain it to her foreign friend in English.

I did some research on that, but I realized that it would be a critical issue if her foreign friend didn’t take it seriously and has already spent a lot of (virtual) money and cold cash that has to be secured in order to pay taxes.

Actually, Japan is the only country that has already provided a solid framework of taxes on VCs. I would say that the government is very clever, meaning they will take away a lot of money from you as taxes.


Tax Hell Japan

The National Tax Administration Agency expressed their views on the taxation on Bitcoin in August 2017.

Then, last December, they announced that capital gains from VCs would be classified into the miscellaneous income category. So, in principle, if the gains exceed ¥200,000, you have to file tax returns.

The thing is that VCs aren’t regarded as financial products whose tax rate is 20%, which is fixed. Since it’s part of miscellaneous income, the rate is progressive taxation. Hence, the rate goes up to 55% maximum (income tax 45% + resident tax 10%).

(Aggregate taxation = progressive taxation)
・Business income
・Employment income
・Miscellaneous income
・Capital gains (in principle)
・Occasional income 

It takes up a lot to submit a tax return paper

In other words, the more you earn from VCs, the more the tax rate goes up to 55%. For example, if you earn ¥100,000,000, eventually, you will need to pay roughly 50,000,000.

*What you have to be careful is that virtual currency exchanges won’t give you transaction records. Consequently, you have to check every single transaction on your own, which is very very very time-consuming and tricky.


Selling, Exchange and Settlement

In Japan, if you own VCs, you’ll be imposed taxes on not only its selling, but also exchange and settlement.

This will be very challenging for your lawful tax avoidance because the only way of doing it is doing nothing (buy VCs and leave them)

When I was figuring out how to calculate them, I even laughed because I could tell the government is desperate to impose taxes on every transaction.

Based on the information provided by the National Tax Administration Agency, I’ll show examples below.

I hope that it’ll help you!

・Example A
You bought 5 bitcoins for ¥500,000 (= ¥100,000/bitcoin)
The value of bitcoin went up to ¥1M/bitcoin
So, you sold all (5 bitcoin) for ¥5M (¥1M × 5 bitcoins)
Your income is
¥5M – ¥500,000 = ¥4.5M

・Example B
You bought 5 bitcoins for ¥500,000 (= ¥100,000/bitcoin)
The value of bitcoin went up to ¥1M/bitcoin
So, you sold 3 bitcoin for ¥3M (¥1M × 3 bitcoins)
Your income is
¥3M – (¥500,000/ 5 bitcoin) × 3 bitcoins = ¥2.7M

You bought 1 bitcoin for ¥500,000
The value of bitcoin went up to ¥1M/bitcoin
Then, you exchanged all of your bitcoin to Ethereum. At this moment, the profit was decided.
So, the income from this transaction is
¥1M – ¥500,000 = ¥500,000.

You bought 5 bitcoins for ¥500,000 (= ¥100,000/bitcoin)
When the value of bitcoin went up to ¥1M/bitcoin, you bought a ¥500,000 camera for 0.5 bitcoins (¥1M/bitcoin× 0.5 = ¥500,000).
Your income is
¥500,000 – (¥500,000/ 5 bitcoins) × 0.5 = ¥450,000
(This is a little tricky, but it means you could buy the ¥500,00 camera for ¥50,000 because the value of bitcoin went up. So, your income is considered to be ¥450,000)

To be continued …

Sponsored Link

Leave a reply

Your email address will not be published. Required fields are marked *