DEC 26, 2023
Japanese cabinet approves crypto tax reform
The Japanese government has green-lit an amendment to its fiscal 2024 tax reform plan, specifically targeting the taxation of companies holding third-party-issued cryptocurrencies.
Introducing tax exemption
According to local news sources, this amendment brings about a crucial change by exempting such companies from the year-end mark-to-market valuation tax.
The Fiscal Year 2024 Tax Reform Outline, now approved by the Japanese cabinet, marks a departure from the previous tax regime. Under the new framework, companies holding crypto assets will no longer be subjected to mark-to-market valuation at the end of the fiscal year. Instead, they will be taxed solely on the actual profits realized from the sale of virtual currencies and tokens.
Alleviating the tax burden
The primary motivation behind this amendment is to alleviate the tax burden on corporations engaged in the holding and operation of crypto assets. Previously, corporations holding third-party-issued cryptocurrencies were required to record profits or losses based on the difference between market value and book value at the end of the fiscal year. The new reform, however, exempts assets assumed to be held continuously from this mark-to-market valuation.
News of moves to implement such reform emerged at the beginning of December. At the time, a report by Nikkei Asia suggested that Japanese lawmakers were working towards addressing issues related to crypto taxation. Japanese regulator, the Financial Services Agency (FSA) had first proposed such changes to the tax code via a 16-page submission on Aug. 31.
Signaling investor-friendly approach
This policy shift aligns the taxation of companies with the tax system applicable to individual investors, signaling a more investor-friendly approach. Lawmakers from the Liberal Democratic Party and their coalition partner Komeito had reportedly considered a proposal to exempt corporations from taxes on unrealized crypto gains. This move is seen as Japan’s effort to boost liquidity in the market, putting it in line with other Asian regions striving to become prominent centers of crypto activity.
The amendment, influenced by the Japan Cryptoasset Business Association’s (JCBA) call for tax reform, is anticipated to stimulate the growth of local startup businesses utilizing blockchain technology and attract international projects to the Japanese market.
The proposal is set to be presented at the regular session of the National Diet (Japan’s national legislature) in January of the upcoming year, where it will require approval from both the House of Representatives and the House of Councilors.
Notably, the Fiscal Year 2024 Tax Reform Outline encompasses a broader spectrum of economic policies, including a plan to reduce income tax and resident tax by 40,000 yen per person from June 2024 onwards.
News of the crypto tax reform has been well-received by most industry commentators and market participants. Daiki Moriyama, Director of Singapore-based gaming blockchain project Oasys, reacted positively to the development. He told The Block:
“The fact that the Japanese government has demonstrated its willingness to grow Web3 business by enacting tax reform for the second year in a row is extremely important to all Web3 business stakeholders around the world.”