Tag: crypto investments

In a recent cabinet meeting held on December 22, the Japanese government finalized the draft cryptocurrency tax reform for fiscal year 2024. This reform comes with a significant change that affects companies that hold crypto assets. The change eliminates the period-end mark-to-market tax that previously applied to companies holding crypto assets issued by third parties (virtual currencies).

As a result, companies will now only pay taxes on profits from the sale of virtual coins and tokens, aligning with the tax system for individual investors. This change aims to ease the tax burden on companies involved in holding and operating crypto assets.

Japan ends cryptocurrency tax on unrealized gains

The revision changes the scope of application of the end-of-period mark-to-market adjustment under the Corporate Tax Law. Previously, companies recorded profits or losses based on the difference between the market value and the book value of crypto assets at the end of the fiscal year. The new policy excludes this valuation at market price if the asset is assumed to be held continuously.

The tax reform responds, in part, to a request submitted by the Japan Crypto Asset Business Association (JCBA) for the 2024 tax reform. The change will promote the growth of Web3, support domestic startups using blockchain technology and attract projects international.

Last year’s tax reform exempted only virtual currencies issued by companies themselves from taxes at the market price. However, growing calls for equal treatment for cryptocurrencies issued by other companies influenced this year’s review.

Will this boost cryptocurrency adoption in Japan?

The 2024 tax reform draft also includes plans to reduce income tax and residence tax by 40,000 yen per person starting in June 2024, tax reductions for companies, and the establishment of a new tax system for sectors strategic and innovation. This is likely to result in a substantial decline in revenue of 3,874.3 billion yen for national and local governments, making it the third largest decline since fiscal year 1989.

The bill requires approval from the House of Representatives and the House of Councilors.

This tax reform marks a crucial step in the introduction of separate taxes (20%) and loss carryover deductions, meeting the wishes of cryptocurrency investors. However, discussions regarding the calculation of profits and losses on crypto asset transactions, including the imposition of a flat tax on the conversion of crypto assets into legal tender, and the consideration of “pass-through” deductions for three years from of the following year, are left for future deliberations. . The development of the corporate tax system is expected to stimulate active discussions on future tax reforms in the crypto space.

Japan has always maintained a friendly approach to cryptocurrencies and therefore remains the preferred destination for cryptocurrency companies. The country has made crucial reforms in a timely manner. Earlier this year, Japan allowed venture capital firms to invest directly in cryptocurrencies.
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