Japan Eases Tax Burden, Will Now Tax Only Profits From Sales Of Digital Currencies

• In its 2024 crypto tax reform, Japan has eliminated the mark-to-market tax for corporations holding third-party crypto assets, shifting taxation to profits from sales to ease tax burden.
• With the goal of easing the tax burden, this aligns corporate tax with that of individual investors. The reform also includes broader implications such as tax reductions and the introduction of a new tax system.

The Japanese government has approved an amendment to the taxation of companies holding third-party-issued cryptocurrencies in its fiscal 2024 tax reform plan.

According to local news sources, the alteration to the taxation of firms holding third-party-issued cryptocurrencies means that such companies will no longer be subjected to the year-end mark-to-market valuation tax.

The Japanese Cabinet meeting approved the tax reform outline for fiscal year 2024. Companies holding crypto assets will no longer need to levy market value tax, and will only be taxed on profits generated by the sale of cryptocurrencies by relevant companies.…

— Wu Blockchain (@WuBlockchain) December 24, 2023

Before this amendment, corporations holding third-party-issued cryptocurrencies were required to record profits or losses based on the disparity between market value and book value at the end of the fiscal year.

Under the new reform, assets assumed to be held continuously will be exempted from this mark-to-market valuation.

This shift in policy means that companies will now be taxed solely on profits arising from the sale of digital currencies and tokens. The goal is to align the corporate tax system with the tax system applicable to individual investors.

Reports recently emerged that lawmakers from the country’s Liberal Democratic Party and their coalition partner Komeito were considering a proposal to exempt corporations from taxes on crypto gains that are not yet realized.

Analysts in the region saw it as Japan’s attempt to inject more liquidity into the market, aligning itself with other Asian regions making strides to become centers of crypto activity.

The amendment was inspired by the Japan Crypto Asset Business Association’s (JCBA) request for tax reform and is expected to foster the growth of local startup businesses utilizing blockchain technology as well as attract international projects.

Previously, only digital currencies issued by the companies themselves were excluded from mark-to-market taxation.

Fostering Growth And Attracting Investments

The tax reform extends beyond crypto taxation, encompassing plans to reduce income tax and resident tax by 40,000 yen per person from June 2024 onwards. 

This reduction applies to individuals and companies alike, accompanied by the establishment of a new tax system for strategic sectors and innovation.

While this reform is anticipated to boost the growth of Web3 and support domestic startups leveraging blockchain technology, it comes at a cost. 

The reduction in taxes is projected 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.

This proposal will be presented at the regular session of the Diet in January of next year, where it will require approval from both the House of Representatives and the House of Councilors.

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