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Japan to Exempt Companies From Unrealized Crypto Gains Tax – Report

Japanese lawmakers are considering a proposal to exempt companies from paying taxes on unrealized gains from cryptocurrencies. The plan is anticipated to be included in the fiscal 2024 tax reform plan. According to a report by Nikkei, the proposal is currently under discussion within the country’s ruling coalition. It specifically targets Japanese companies that hold digital assets for purposes other than short-term trading.

The exemption from corporate tax would be determined based on mark-to-market valuations at the end of the fiscal year. This potential tax reform reflects a growing recognition of the significance of digital assets in the business landscape and aims to provide favorable conditions for companies engaging in longer-term cryptocurrency holdings.

The term “mark-to-market” refers to the practice of measuring the fair values of accounts, especially those subject to periodic fluctuations, such as cryptocurrencies. In this context, the proposed tax exemption in Japan would apply to companies engaged in activities like holding digital assets for reasons other than short-term trading.

The potential beneficiaries of this tax exemption include various entities such as venture capital firms, non-fungible token (NFT) businesses, blockchain companies holding cryptocurrencies for payment purposes, and crypto issuers. Notably, crypto issuers, who are themselves holders of cryptocurrencies, are currently not subject to taxes.

Policymakers from the Liberal Democratic Party and the ruling coalition partner Komeito discussed these proposed tax exemptions during their discussions on Tuesday, signaling ongoing efforts to create a tax framework that accommodates the evolving landscape of digital assets in Japan.

Crypto Tax Clarity in Japan

In June, Japan’s National Tax Agency issued a notice clarifying that crypto issuers in the country would not be required to pay capital gains taxes on unrealized gains. This move was part of Japan’s efforts to create a tax environment that encourages crypto-related businesses to stay in the country, especially following the departure of many startups due to high tax burdens.

The review of Japan’s crypto tax treatment has been ongoing since at least the previous year, and it underscores a broader effort to adapt regulations to the evolving landscape of digital assets. Recently, the country’s top financial regulator, the Financial Services Agency (FSA), submitted requests for legislative changes to the government, signaling a commitment to reforming the way Japan taxes domestic crypto firms. These actions aim to foster a more favorable environment for the growth and sustainability of the cryptocurrency industry within Japan.

The existing tax rule in Japan, which has long been criticized for imposing a burden on companies and impeding innovation in the cryptoasset and blockchain sectors, is under scrutiny. In response to these concerns, the Japan Association of New Economy (JANE) has urged the government to implement crypto tax reforms. Specifically, JANE has called for a reduction in tax rates in 2024 with the aim of fostering growth in the sector and simultaneously increasing tax revenue.

This move reflects a broader recognition of the need to create a more conducive regulatory and tax environment for crypto-related businesses in Japan, aligning with efforts to promote innovation and support the continued development of the cryptocurrency and blockchain industries within the country.

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