Japan’s National Tax Agency recently announced revisions to the corporate tax rules for cryptocurrency issuers. These revised rules bring about an exemption for crypto token issuers, relieving them from paying corporate tax on unrealized gains from their holdings. According to a local news report, the exemptions are subject to two conditions. Firstly, the tokens must be issued by the firm itself and held continuously since their issuance. Secondly, the tokens must have been subjected to “transfer restrictions” from the time of issuance.
The proposal for these revisions was approved by the tax committee of Japan’s Liberal Democratic Party (LDP) in December 2022. It was subsequently included in the ruling party’s tax reform outline for 2023, and this week, the tax authority gave the final approval. Prior to this revision, token issuers were required to pay a 35% tax on unrealized gains for tokens held if those tokens were listed in the open market. The taxation occurred at the end of the taxation period.
This previous taxation policy placed an excessive burden on crypto firms as they had to pay taxes on gains that only existed on paper. Since the holdings were not sold, the taxable gains were unrealized, resulting in firms paying taxes for profits they had not actually generated. Consequently, this taxation regime led to an exodus of crypto founders from Japan.
The relaxation of corporate taxes represents a significant step towards improving the business environment for crypto firms in Japan. Sota Watanabe, the founder of Japan-based Astar Network, who has actively advocated for tax breaks for crypto firms, expressed his belief that the recent revisions will help halt this exodus. Watanabe further stated his intention to continue collaborating with regulators and politicians to establish more favorable tax rules for Japanese crypto firms. Additionally, he emphasized the need to address the end-of-term taxation of holding tokens issued by other companies as a corporation, as this currently hampers domestic project expansion.
Although the current revision of the tax laws provides some relief, crypto firms are still obligated to pay taxes on paper gains for holding tokens issued by other firms.