Japan government to eliminate corporate tax on unrealized crypto profits

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The Japanese government is moving forward with a tax reform that would exempt firms from paying taxes on “unrealized gains” from their cryptocurrency holdings. This move comes following reports that the cabinet has approved a revision to the national tax rules for digital assets.

Reports from Nikkei and Coinpost indicate that these changes might take effect on April 1, 2024, the beginning of Japan’s financial year. The bill needs to be presented to lawmakers in January and requires approval from both the House of Representatives and the House of Councillors.

Japanese companies must report cryptocurrencies received from third parties based on the difference between market value and book value. With the tax reform, corporations will only face taxes on profits made from selling cryptocurrencies, aligning with the tax laws that apply to retail investors in Japan.

“The government will review the taxation system for crypto assets (virtual currency) for corporations and institutional investors. Until now, corporations were taxed at fair value at the end of the fiscal year when they held virtual currency or tokens (electronic vouchers), but if they hold them continuously and not for the purpose of short-term trading, they will be exempt from the fair value taxation. The focus will be on whether the outflow of blockchain (distributed ledger) companies overseas will stop,” Nikkei said.

The government revealed its 2024 tax reform outline in a document released on December 14. The Financial Services Agency had previously proposed the idea to eliminate unrealized cryptocurrency profits on August 31.

Before the tax revision becomes official, it needs to go through the parliamentary process, including submission to a regular Diet session in January 2024 and obtaining approval from both the Lower House and the Upper House of the Japanese Parliament.

Earlier, the tax authorities revealed 548 instances of cryptocurrency-related tax violations out of 615 investigations in 2022, marking a 35 percent increase from 2021.

However, the average value of undeclared cryptocurrency holdings decreased by 19 percent, dropping from 36.5 million Japanese yen ($245,000) in 2021 to 30.7 million yen ($206,000) in 2022.

Tax rule change to allow Japanese companies to venture into Web3

Tax rules becoming more relaxed could enable more Japanese companies to venture into Web3-related initiatives.

In November, Circle, the issuer of USD Coin (USDC), partnered with Tokyo’s SBI Holdings to enhance stablecoin adoption and Web3 services in Japan. CEO Yoshitaka Kitao said this move would encourage widespread adoption of stablecoins in the country.

“Japan is steadily preparing the groundwork for the full-scale introduction of stablecoins [and] we are very pleased to have signed a basic agreement for a comprehensive business alliance with Circle,” Kitao said.

Circle CEO Jeremy Allaire emphasized that the partnership signifies a joint vision for the future of digital currency in Japan and Asia. He also encouraged investors to use Circle’s Web3 Services suite. This suite offers comprehensive platforms for creating and managing Web3 applications across different blockchains, catering to areas like gaming, culture and consumer entertainment.

SBI Shinsei Bank, a subsidiary of SBI, will offer banking services to Circle. This collaboration aims to grant access to USDC and ensure liquidity for businesses and users based in Japan. Circle highlighted in August that 70 percent of USDC usage takes place internationally, with Asia at the forefront of this trend.