Japan To Introduce Major Tax Reforms For Crypto Firms In 2024

In a recent cabinet meeting on the 22nd of December, the Japanese government finalized the crypto tax reform outline for fiscal 2024. This reform comes with a significant amendment impacting corporations holding crypto assets. The amendment removes the period-end mark-to-market valuation tax previously applied to corporations holding third-party-issued crypto assets (virtual currencies).

As a result, corporations will now be taxed solely on profits from the sale of virtual currencies and tokens, aligning with the tax system for individual investors. This amendment aims to alleviate the tax burden on corporations involved in holding and operating crypto assets.

Japan Ends Crypto Tax On Unrealized Profits

The revision alters the application scope of period-end mark-to-market under the Corporation Tax Law. Previously, corporations recorded profits or losses based on the difference between market value and book value of crypto assets at the fiscal year-end. The new policy excludes this mark-to-market valuation 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 foster the growth of Web3, support domestic startups utilizing blockchain technology, and attract international projects.

Last year’s tax reform exempted only virtual currencies issued by corporations themselves from mark-to-market taxation. However, growing calls for equal treatment of cryptocurrencies issued by other companies influenced this year’s revision.

Will This Boost Crypto Adoption in Japan?

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

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

This tax reform marks a crucial step toward introducing separate taxation (20%) and loss carryover deductions, addressing the desires of cryptocurrency investors. However, discussions on profit and loss calculations in crypto asset transactions, including the imposition of lump-sum tax upon converting crypto assets into legal currency, and the consideration of “carry-over” deductions for three years starting from the following year, remain for future deliberation. The development of the corporate tax system is expected to stimulate active discussions on further tax reforms in the crypto asset space.

Japan has always held a crypto-friendly approach and thus remains the go-to destination for crypto firms. The country has been making crucial reforms in a timely manner. Earlier this year, Japan allowed VC firms to directly invest in crypto.

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Bhushan is a FinTech enthusiast and holds a good flair in understanding financial markets. His interest in economics and finance draw his attention towards the new emerging Blockchain Technology and Cryptocurrency markets. He is continuously in a learning process and keeps himself motivated by sharing his acquired knowledge. In free time he reads thriller fictions novels and sometimes explore his culinary skills.

The presented content may include the personal opinion of the author and is subject to market condition. Do your market research before investing in cryptocurrencies. The author or the publication does not hold any responsibility for your personal financial loss.