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Japan Abolishes Tax on Unrealized Gains in Cryptocurrency

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Key Points

  • With its 2024 crypto tax reform, the Japanese government will no longer impose a mark-to-market tax on firms that own cryptocurrency assets belonging to third parties, instead focusing on sales income.
  • This connects corporate tax with individual investor tax in an effort to reduce tax burdens. Wider ramifications of the change include lower taxes and the implementation of a new tax structure.
  • Though expansion has been encouraged, issues over the economic consequences have been sparked by worries about the notable drop in revenue. Discussions about policies pertaining to the cryptocurrency field and profit estimations are still ongoing.

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The Japanese government revealed a crypto tax reform proposal for fiscal 2024 during a recent cabinet meeting on December 22, which will result in significant changes to how firms holding crypto assets are taxed.

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The period-end mark-to-market value tax that was formerly imposed on enterprises that held cryptocurrency assets issued by third parties was repealed, fulfilling the reform request made by the Japan Crypto Asset Business Association (JCBA).

This is a significant change because it will bring companies’ tax structure closer to that of private investors by taxing them only on income from the selling of virtual currencies and tokens.

Effect on businesses

The Corporation Tax Law’s period-end mark-to-market application scope is modified by the modification. If the asset is assumed to be kept continuously, corporations will no longer report profits or losses based on the difference between market value and book value of crypto assets at the conclusion of the fiscal year. This also implies that firms will only pay taxes on the proceeds from the sale of digital assets, in line with the investor tax system.

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The purpose of this calculated action is to reduce the tax burden that businesses that own and manage cryptocurrency assets must bear. It also satisfies the mounting call for cryptocurrency issued by businesses other than the issuer to be treated equally.

Encouraging expansion and drawing capital

Beyond just taxing cryptocurrencies, the tax reform also includes pledges to lower residence and income taxes by 40,000 yen per person starting in June 2024. This cut, which is applicable to both individuals and businesses, is coupled with the creation of a new tax structure for innovation and strategic industries.

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This reform has a cost, even though it is expected to accelerate Web3’s growth and assist domestic firms using blockchain technology. It is estimated that the tax cut will cause a significant drop in revenue for national and local governments, totaling 3,874.3 billion yen, the third-largest fall since fiscal 1989.

Japan’s Pro-Cryptocurrency Position and Future Prospects.

Japan has established itself as a top location for cryptocurrency companies, and it has long been known for its crypto-friendly policies. The country has continuously enacted reforms on schedule; early this year, for example, it allowed venture capital firms to make direct investments in cryptocurrency.

This tax reform, which introduces separate taxes (20%) and loss carryover deductions, is a major step towards satisfying the demands of bitcoin investors. Thoughts about “carry-over” deductions for three years, lump-sum tax imposition upon converting cryptocurrency assets into legal currency, and profit and loss computations in crypto asset transactions are still up for debate.

The nation’s cryptocurrency industry supporters have been calling for a revision to Japan’s tax legislation pertaining to digital assets for a long time. The independent Japan Blockchain Association (JBA) asked the Japanese government to enact three major changes to the country’s present cryptocurrency laws around the end of July.CRYPTOCASTER® - DECENTRALIZED FREEDOM!


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