Japan is moving forward with a tax reform that would benefit corporations that hold cryptocurrencies, as part of its efforts to foster innovation in the Web3 space. The proposed reform would exempt firms from paying tax on unrealized gains from their crypto holdings, aligning them with the tax treatment of retail investors.
According to local media reports12, the Japanese government announced the new tax reform on Dec. 22, after a cabinet meeting. The reform is expected to take effect from April 1, 2024, the start of Japan’s fiscal year. However, the bill still needs to be submitted to lawmakers in January and approved by both the House of Representatives and the House of Councilors.
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Currently, corporations that receive cryptocurrencies from third parties have to report them as income, based on the difference between their market value and book value, regardless of whether they sell them or not. This means that they have to pay tax on paper gains, even if they do not realize them in cash. This rule has been criticized for placing a burden on companies and hindering innovation in the crypto and blockchain sectors3.
Under the proposed reform, corporations would only have to pay tax on profits from the sale of cryptocurrencies, similar to what retail investors have to do under Japanese tax laws. This would reduce the tax liability and volatility for firms that hold cryptocurrencies for long-term purposes, such as payment, investment, or Web3 development.
The reform is part of Japan’s broader strategy to promote innovation and competitiveness in the Web3 space, which refers to the decentralized and user-centric internet powered by blockchain, crypto, and other emerging technologies. Japan has been lagging behind other countries in terms of crypto adoption and regulation, and has seen some crypto startups leave the country due to heavy tax burdens4.
However, Japan has also shown signs of progress and openness to the Web3 ecosystem. For instance, the country’s Financial Services Agency (FSA) recently submitted a plan to scrap the tax on unrealized crypto profits for corporations. Moreover, some of the leading financial institutions in Japan have partnered with global crypto players to boost Web3 services in the country. For example, Circle, the issuer of the USD Coin (USDC) stablecoin, recently teamed up with SBI Holdings, a Tokyo-based financial services firm, to increase stablecoin adoption and Web3 innovation in Japan.
The tax reform could have a positive impact on the crypto industry and the Web3 ecosystem in Japan, as it could encourage more corporations to hold and use cryptocurrencies, and to participate in the development and adoption of Web3 applications and platforms. However, the reform could also face some challenges and opposition from regulators and lawmakers, who might have concerns about the potential risks and abuses of cryptocurrencies, such as tax evasion, money laundering, and terrorism financing.
In summary, Japan is planning to cut the corporate tax on crypto profits to boost Web3 innovation, as part of its tax reform for 2024. The reform would exempt firms from paying tax on unrealized gains from their crypto holdings, and align them with the tax treatment of retail investors. The reform is expected to benefit corporations that hold cryptocurrencies for long-term purposes, such as payment, investment, or Web3 development. However, the reform still needs to be approved by the parliament, and could face some hurdles and resistance from regulators and lawmakers.