Earlier this week, the National Tax Agency of Japan revised the corporate tax regulations for cryptocurrency issuers, which now include an exemption for crypto token issuers from paying corporate tax on unrealized gains for their holdings.
As per a local news report, the exemptions are subject to two conditions. Firstly, the tokens must be issued by the company and held continuously since issuance. Secondly, the tokens must have been subjected to “transfer restrictions” since the time of issuance.
The Liberal Democratic Party’s tax committee in Japan endorsed the proposal for the revisions in December 2022, which was subsequently included in the ruling party tax reform outline for 2023. The tax authority granted the final approval for the revisions earlier this week.
Before the revision, if the tokens held by token issuers were listed in the open market, they were required to pay a 35% tax on unrealized gains for such holdings. The holdings were taxed at the end of the taxation period.
The steep taxation imposed on crypto firms prior to the revision placed an undue burden on them. This was because they had to pay tax on paper gains, as the holdings were not sold, and the taxable gains were unrealized. In essence, the firms were required to pay taxes for profits that they had not actually generated. Consequently, this taxation policy led to an exodus of crypto founders from Japan.
The relaxation of corporate taxes is a significant move towards creating a more favorable business environment for crypto firms in Japan. Sota Watanabe, the founder of Astar Network, a Japan-based company, has been actively advocating for tax breaks for crypto firms. He believes that the recent revisions will help to prevent the exodus of crypto founders from the country.
Watanabe has expressed his intention to continue collaborating with regulators and politicians to introduce more favorable tax regulations for crypto firms in Japan. He further stated:
“Next, I would like to do something about the end-of-term taxation of holding tokens issued by other companies as a corporation, as it is a hindrance to the domestic expansion of projects and domestic projects.”
Although the current revision of tax laws provides some relief, crypto firms are still required to pay tax on paper gains for holding tokens issued by other firms.
