Japan Abolishes Corporate Tax On Unrealized Crypto Profits

The Japanese government has approved a tax reform that will provide favorable conditions for companies holding cryptocurrencies. An amendment to fiscal 2024 taxation laws will exempt companies from paying tax on “unrealized gains” on third-party digital tokens like Bitcoin (BTC).

According to local reports, Japan’s government disclosed the new tax reform on December 22 following a cabinet meeting. The new changes will take effect on April 1, 2024 — the start of Japan’s fiscal year.

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

Before this amendment, companies had to report cryptocurrencies received from third parties, with taxes calculated based on the difference between book value and market value at the end of the fiscal year, regardless of whether the firm sold the cryptocurrency. However, under the new tax regime, firms will only be taxed on gains from the sale of cryptocurrencies, aligning with the tax obligations of retail investors under Japanese tax laws.

Moreover, the tax reform takes a significant step towards establishing separate taxation for crypto transactions. This involves implementing specific tax rates and loss carryover deductions for crypto asset dealings.

The Japanese Crypto Asset Business Association (JCBA) also advocates these changes. The JCBA has proposed various measures, including exempting taxes on crypto-to-crypto exchanges and imposing a lump-sum tax when converting crypto assets into legal currency. They have also suggested the introduction of a carry-over deduction for three years.

The government initially shared the 2024 tax reform details in a document published on Dec. 14. However, the country’s Financial Services Agency first submitted the plan on Aug. 31 to scrap unrealized cryptocurrency profits. The eased tax rules could potentially encourage more companies to pursue Web3-related endeavors in Japan.

Japan Is Actively Embracing Web3 And Crypto

The Japanese parliament approved stablecoin regulations earlier this year to enhance investor security. The “Payment Services Law” officially accepts fiat-backed stablecoins as “electronic payment methods” and allows their issuance. However, only registered remittance agents, licensed banks, and trust companies can issue stablecoins.

In a recent development, the issuer of USD Coin, Circle, has partnered with Tokyo-based financial services firm SBI Holdings to further stablecoin adoption and Web3 services in Japan. The country’s evolving regulatory approach and embrace of cryptocurrencies and Web3 position the country as a digital finance hub. This fosters innovation and contributes to the mitigation of fund outflows to more tax-friendly jurisdictions.