Cryptocurrency Profits in Japan and Their Impact on Immigration and Tax Compliance#

In recent years, an increasing number of foreign nationals residing in Japan have engaged in cryptocurrency trading, earning significant profits from assets such as Bitcoin and Ethereum. While increasing one’s assets through investment is a legitimate economic activity, failing to handle these profits correctly under Japan’s tax system and Immigration Services Agency protocols can have fatal consequences for visa renewals and Permanent Residence applications.

This article provides an objective explanation of the necessity of filing tax returns (Kakutei Shinkoku) for cryptocurrency profits and analyzes how these financial activities intersect with the maintenance of legal residence status in Japan.

Tax Classification of Cryptocurrency Profits: “Miscellaneous Income”#

First, it is crucial to understand how cryptocurrency profits are categorized under the Japanese tax code. Unlike capital gains from stocks, which are generally subject to a separate self-assessment taxation rate of approximately 20%, profits from cryptocurrency trading are principally classified as “Miscellaneous Income” (Zatsu-shotoku).

Miscellaneous Income is subject to “aggregate taxation.” This means that crypto profits are added to other forms of income, such as employment salary, to determine the total taxable income. Japan employs a progressive tax rate system, meaning that the higher the total income, the higher the tax rate. When combining National Income Tax and local Residence Tax, the effective tax rate can reach up to approximately 55% for high earners.

Generally, salaried employees in Japan are required to file a final tax return (Kakutei Shinkoku) if their income from sources other than their primary salary exceeds 200,000 JPY per year. Failing to file this return constitutes tax evasion, which is a violation of the obligation to observe Japanese laws.

The Nexus Between Tax Compliance and Immigration Review#

When the Immigration Services Agency reviews applications for entry or extension of stay, one of the most scrutinized factors is the “fulfillment of tax obligations.” For applications regarding work visa renewals or Permanent Residence, applicants are invariably required to submit certificates of taxation and tax payment for Residence Tax and often Income Tax.

If a foreign resident earns substantial profits from cryptocurrency but fails to file a tax return, a discrepancy arises between the income declared on the tax certificates and the applicant’s actual assets or lifestyle (e.g., making expensive purchases or remitting large sums overseas). If a tax audit reveals undeclared income and imposes penalty taxes, this fact may be communicated to Immigration authorities.

From an immigration perspective, tax delinquency or evasion negatively impacts the assessment of “good conduct” (a requirement for Permanent Residence) and “suitability with national interests.” In severe cases, this can lead to the shortening of the period of stay, denial of visa extension, or rejection of Permanent Residence applications.

Implications for Students and Dependent Visa Holders#

Foreign nationals holding “Student” or “Dependent” (family stay) visas often worry whether cryptocurrency trading constitutes a violation of their restrictions on activities—specifically, the prohibition on working without permission or beyond the 28-hour-per-week limit.

Under current immigration practices, pure asset management (buying and selling cryptocurrency) is generally not considered “labor” or “work.” Therefore, even if the profits are substantial, it typically does not constitute a violation of the “Permission to Engage in Activity other than that Permitted under the Status of Residence.” However, two critical risks must be noted:

1. Exclusion from Dependency: If income from cryptocurrency increases significantly, the individual may exceed the income threshold for being a “dependent” for social insurance purposes (typically 1.3 million JPY per year) or for tax deduction purposes. Failing to report this change and remaining on a supporter’s health insurance plan illegal and viewed as a failure to fulfill public obligations.
2. Neglect of Primary Activity: For students, if trading activities take precedence over studies, leading to poor attendance or academic failure, the legitimacy of their “Student” status may be questioned during renewal.

The “Exit Tax” (Taxation on Unrealized Gains)#

Long-term residents, particularly those with Permanent Residence or Highly Skilled Professional visas, must be aware of the “Exit Tax” (system of taxation at the time of departure). This rule applies to residents who hold financial assets exceeding 100 million JPY at the time of permanently leaving Japan.

Cryptocurrency is included in these target assets. Under this system, even if the cryptocurrency has not been sold (i.e., the gains are unrealized), it is treated as if it were sold at the market value at the time of departure, and income tax is levied on the deemed gains. Many foreign nationals leave Japan without understanding this system, only to face significant tax liabilities later.

Banking Risks and Anti-Money Laundering Measures#

While not directly an immigration regulation, banking stability is essential for life in Japan. Japanese banks enforce strict Anti-Money Laundering (AML) measures. If a foreign national’s bank account suddenly receives large transfers (such as withdrawals from a crypto exchange), the bank may freeze the account or demand proof of the source of funds.

A properly filed tax return serves as official documentation proving that the funds are legitimate profits from trading, thereby helping to resolve or prevent banking complications.

Conclusion#

Making a profit from cryptocurrency in Japan is legally permissible. However, the associated responsibilities of filing a tax return and paying the appropriate taxes are non-negotiable conditions for maintaining a stable status of residence.

Assuming that “the authorities won’t find out” is a dangerous misconception that can permanently jeopardize one’s ability to renew a visa or obtain Permanent Residence. Strict adherence to Japanese tax laws and transparent financial reporting are the surest ways to protect one’s life and future in Japan.