Japan to reform crypto-corporate tax law

The Japanese government has announced that it will evaluate the crypto tax rules applicable to companies in fiscal year 2023. The Financial Services Agency and the Ministry of Economy, Trade and Industry (METI) will conduct the assessment of how these digital asset companies will use digital assets to drive forward the growth of startups.

The tax reform request for fiscal year 2023 has aimed to address key issues that the advocacy groups have stated are roadblocks to crypto adoption in Japan. The two eminent crypto advocacy groups in Japan, The Japan Crypto-Asset Business Association and the Japan Crypto-Asset Exchange Association (JVCEA) had issued this request to lower tax rates for individual investors on crypto income.

This proposal has primarily been intended to address the need for better individual tax filing and the general importance of digital assets in the Web3 industry in Japan. This has been part of the proposal after the advocacy groups compared Japan’s digital wealth tax system with that of other nations.

Changes to the crypto taxation system

Tax authorities have said that the updated tax structure will take into account whether the companies holding cryptocurrency assets should be taxed when they generate profits from sales.

Regulators ensured that the agencies do not want to be a hindrance to the growth of the industry as a whole or even discourage digital asset companies from working in the country.

The proposal aims at a separate tax of 20% for individual investors with an option to carry forward losses for the next three years from the following year. The proposal has also mentioned the same tax structure that will apply to the crypto derivatives market.

The separate tax of 20% on digital asset income with the exemption of the unrealized gains will help to be a big relief for digital asset investors in Japan.

Currently, investors in Japan have to pay up to 55% on their crypto investments.

The tax reform proposal comes after the internal memo on tax reforms for digital assets was delayed in submission to Japan’s Financial Services Agency (FSA). The change in the reform is to ease the tax policy in the country due to many companies moving out of Japan and operating in Singapore and the United Arab Emirates, as they have easier regulation.

Strict tax rules

Currently, Japan imposed a 30% corporate tax on cryptocurrencies. This has actually caused a brain drain from the digital asset industry in Japan.

The advocacy groups have mentioned that because of such strict guidelines, Japan has caused companies to leave the country.

The reasons have been aimed at lack of consistency in the system and also the need to establish and stabilize the Web3 industry and also create a better environment for tax returns.