Japan has revised its tax rules for cryptocurrency issuers, exempting them from paying corporate taxes on unrealized gains on tokens they issued and held.
The tax exemption aims to facilitate business activities involving token issuance and support the growth of Japan’s blockchain and crypto sectors.
Japan is one of the pioneers in regulating and adopting cryptocurrencies and blockchain technology. The country has recently implemented stricter anti-money laundering measures and restricted stablecoin issuance to licensed entities.
The country’s prime minister, Fumio Kishida, has also expressed his support for digital finance and blockchain adoption as part of his vision of “new capitalism.”
On June 20, the National Tax Agency of Japan issued a notification that clarified the tax treatment of cryptocurrency issuers in the country.
The notification states that crypto issuers will not have to pay capital gains taxes on unrealized profits from holding their own tokens.
This tax exemption applies to companies that issue tokens through initial coin offerings (ICOs), security token offerings (STOs), or other methods and hold them as part of their business assets.
It does not apply to tokens acquired through trading or other means.
The tax exemption is intended to reduce the financial burden and encourage business activities involving token issuance.
The ruling Liberal Democratic Party (LDP) expects this tax exemption to make it easier for various companies to engage in token issuance and related businesses.
Before this revision, even unrealized gains from cryptocurrencies were subject to taxation, resulting in increased financial burdens for companies operating in the crypto space. Japan’s standard corporate tax rate of 30% is among the highest in the world.
However, the tax exemption does not apply to cryptocurrency investors, who are still subject to a maximum 55% income tax on crypto-related earnings over 200,000 Japanese yen (US$1,400), classified as “miscellaneous income.”
Bloomberg reported last week that the Japan Virtual & Crypto Assets Exchange Association, the country’s lobby group for the crypto industry, requested that crypto margin trading limits be relaxed.
Blockchain and Crypto Sector in Japan
The tax exemption for crypto issuers is part of Japan’s efforts to promote its blockchain and crypto sector, which has recently undergone notable transformations.
Japan is one of the first countries to legalize cryptocurrencies as private asset and regulate crypto exchanges to enhance security and protect users’ funds.
Aligning its legal framework with global standards, the country has also implemented stricter anti-money laundering (AML) measures to ensure greater transparency in cryptocurrency transactions.
In response to the Financial Action Task Force (FATF) findings, Japan revised its AML legislation in December to address its previous insufficiencies.
Furthermore, in June of last year, the government passed legislation prohibiting non-banking institutions from issuing stablecoins.
The bill, which was implemented a few weeks ago, stipulates that stablecoin issuance within the country is restricted to licensed banks, registered money transfer agents, and trust companies.
These measures aim to safeguard financial stability and protect consumers in the evolving crypto landscape.
Japan’s reputation as a pioneer in the cryptocurrency realm remains strong, as it has been supporting various initiatives and projects in the blockchain space.
For instance, Mitsubishi UFJ Financial Group Inc. (MUFG), the largest bank in Japan, is reportedly in talks with various global cryptocurrency companies about issuing stablecoins.
MUFG announced the specifics of its Progmat Coin blockchain-based platform earlier this month, which will enable local banks to issue stablecoins and digital assets.
Following the high-profile hacks of Mt. Gox and Coincheck, the country’s financial regulator tightened regulations on crypto exchanges to enhance security and protect users’ funds.
The effectiveness of these local regulations was highlighted during the collapse of the FTX exchange, where assets were swiftly returned to users in Japan, contrasting with users in other countries who faced delays in the refund process due to unclear deadlines.
