The Japanese government approved the tax reform outline for fiscal 2024 at a cabinet meeting on the 22nd. This revision aims to eliminate the mark-to-market period-end valuation tax imposed on corporations. The tax targets those holding crypto assets (virtual currency) issued by third parties.
The Japanese Cabinet meeting approved the tax reform outline for fiscal year 2024. Companies holding crypto assets will no longer need to levy market value tax, and will only be taxed on profits generated by the sale of cryptocurrencies by relevant companies.…
— Wu Blockchain (@WuBlockchain) December 24, 2023
Due to the tax reform, the scope of application of period-end mark-to-market under the Corporation Tax Law will change. Previously, corporations recognized profits or losses on crypto assets (virtual currencies) held “as is” from third parties. This assessment was based on the difference between market value and book value at the end of the fiscal year. This implied a policy that this mark-to-market valuation is no longer relevant if the asset is assumed to have continuity in holding.
This would result in corporations being subject to tax solely on gains realized from the sales of virtual currencies and tokens. The profits from these transactions would then be treated as holdings or interests of the corporation. This amendment, therefore, reduces the tax burden on the corporation in holding and operating the crypto assets.
This tax reform partially embodies the request for the 2024 tax reform submitted to the government by the Japan Crypto Asset Business Association (JCBA). This revision is expected to encourage the promotion of Web3 and support domestic business start-ups utilizing blockchain technologies. Additionally, it aims to foster the attraction of overseas projects in the context of the changes made.
A call to extend the same treatment to digital currencies issued by other firms has been gaining momentum in recent months. Addressing the prior tax reform, only corporate-issued virtual currencies are exempt from mark-to-market taxation, a crucial adjustment for clarity.
Broader Fiscal Changes in FY2024
In addition, the FY2024 tax reform outline includes:
- A plan to reduce income and resident taxes by 40,000 yen per person from June 2024 onwards.
- Tax cuts for companies.the establishment of
- Establishing a new tax system for strategic sectors and innovation.
The indicated factors suggest a decline in revenue to 3,874.3 billion yen for the national and local governments. This would mark the third-largest decline in the three occasions since fiscal 1989. Lawmakers plan to submit the bill to the regular session of the Diet in January, anticipating approval by both the House of Representatives and the House of Councillors.
Crypto Tax Reform: Scrapping Year-End Gains
This tax reform is an outcome of this extensive tax reform and the possible independent resolution, repealing the year-end unrealized gain tax imposed upon corporations. Therefore, authorities are actively advancing the mandate for separate taxation (20%) and full segregation of loss carryover deductions from what cryptocurrency investors are advocating.
The Japan Crypto Asset Business Association (JCBA) proposes that exchanging a crypto asset should not incur tax in profit and loss calculations for crypto asset transactions. JCBA was still imposing a lump-sum tax when converting crypto assets into legal tender and “carryover” within three years starting next year.
JCBA asked the government to consider “deduction.” Such requests remain for future discussion. Furthermore, Stakeholders anticipate increased discussions regarding the separate taxation of crypto-assets and other reforms in this field. This anticipation coincides with the ongoing development of a corporate tax system.
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