In a recent cabinet meeting on December 22, the Japanese government unveiled a crypto tax reform outline for fiscal 2024, bringing notable changes to the taxation of corporations holding crypto assets.
The Japan Crypto Asset Business Association (JCBA) requested a reform that has eliminated the period-end mark-to-market valuation tax previously applied to corporations holding third-party-issued crypto assets.
This marks a substantial shift as corporations will now be taxed solely on profits from the sale of virtual currencies and tokens, aligning their tax structure with individual investors.
Impact on corporations
The revision alters the application scope of period-end mark-to-market under the Corporation Tax Law. Corporations will no longer record profits or losses based on the difference between market value and book value of crypto assets at the fiscal year-end, provided the asset is assumed to be held continuously. This further means that corporations will only be taxed based on the sale of digital assets alone, aligning with the tax system of investors.
This strategic move aims to alleviate the tax burden on corporations involved in holding and operating crypto assets. It also responds to the growing demand for equal treatment of cryptocurrencies issued by companies other than the issuer itself.
Fostering growth and attracting investments
The tax reform extends beyond crypto taxation, encompassing plans to reduce income tax and resident tax by 40,000 yen per person from June 2024 onwards. This reduction applies to individuals and companies alike, accompanied by the establishment of a new tax system for strategic sectors and innovation.
While this reform is anticipated to boost the growth of Web3 and support domestic startups leveraging blockchain technology, it comes at a cost. The reduction in taxes is projected to result in a substantial decline in revenue, amounting to 3,874.3 billion yen for national and local governments, making it the third-largest decline since fiscal 1989.
Japan’s crypto-friendly stance and future considerations
Japan has long been recognized for its crypto-friendly approach, positioning itself as a go-to destination for crypto firms. The nation has consistently implemented timely reforms, such as permitting venture capital firms to directly invest in crypto earlier this year.
This tax reform represents a significant step towards addressing the desires of cryptocurrency investors by introducing separate taxation (20%) and loss carryover deductions. However, discussions on profit and loss calculations in crypto asset transactions, lump-sum tax imposition upon converting crypto assets into legal currency, and considerations for “carry-over” deductions for three years remain for future deliberation.
There has been a persistent call for a reform of Japan’s tax laws regarding digital assets by advocates of the cryptocurrency industry in the country. In late July, the Japan Blockchain Association (JBA), an independent organization, requested the Japanese government to implement three significant amendments to the current crypto regulations.
