The tax break is good news for Japanese cryptocurrency firms, which still have to pay taxes on paper gains from tokens issued by other companies.
Japan’s National Tax Agency revised its corporate tax rules for cryptocurrency issuers earlier this week, exempting them from paying corporate taxes on unrealized gains on their holdings.
According to local news reports, the exemption applies in two cases. First, the tokens must be issued by the company itself and held continuously since issuance. Second, the tokens must be subject to "transfer restrictions" from the date of issuance.
Japan's Liberal Democratic Party's Taxation Committee approved the proposed amendments in December 2022 and included them in the ruling party's 2023 tax reform outline, with the tax agency giving final approval this week.
Prior to the amendment, token issuers had to pay a 35% tax on unrealized gains on their token holdings if the tokens were listed on the public market. The holdings were taxed at the end of the tax period.
This high taxation places an undue burden on cryptocurrency companies, which must pay taxes on paper gains, and since the assets held are not sold, the taxable gains are not realized. In other words, companies must pay taxes on profits they did not actually generate. As a result, the taxation causes cryptocurrency founders to leave Japan.
The relaxation of corporate taxes is a step towards easing the business environment for cryptocurrency companies in Japan. Sota Watanabe, founder of Japan’s Astar Network, who has been an active advocate for tax breaks for cryptocurrency companies, said the recent revisions will help stem capital outflows.
Watanabe said he will continue to work with regulators and politicians to introduce more favorable tax rules for cryptocurrency companies in Japan. He continued:
“Next, I would like to take some measures on the final taxation of holding tokens issued by other companies as a company, because this is an obstacle to domestic projects and the expansion of domestic projects.”
While current changes to the tax code provide some relief, cryptocurrency companies must still pay taxes on paper gains from holding tokens issued by other companies.