The Japanese government has approved a tax reform that exempts domestic firms from paying tax on unrealized gains from cryptocurrency holdings, starting on April 1, 2024. The previous tax regime required corporations to report paper gains from cryptocurrencies received from third parties, regardless of whether the assets were sold. The revised tax rules align with those for retail investors, taxing corporations only on their actual profits when they sell cryptocurrencies.


Key Changes:

  • Effective Date: The new tax reform is set to take effect on April 1, 2024, marking the beginning of Japan's financial year.

  • Previous Tax Regime: Corporations were previously required to report and pay tax on unrealized gains from cryptocurrency holdings based on the difference between market value and book value, irrespective of whether the assets were sold.

  • Revised Tax Rules: Under the revised rules, corporations will only be taxed on profits realized from the sale of cryptocurrencies, mirroring the tax obligations for retail investors in Japan.

  • Impact on Web3 Ventures: The eased tax regulations are expected to encourage more companies to explore and invest in Web3-related initiatives in Japan.

Web3 Collaboration: The collaboration between stablecoin issuer Circle, the team behind USD Coin (USDC), and Tokyo-based financial services firm SBI Holdings exemplifies the progress in Web3-related ventures in Japan. The partnership aims to boost stablecoin adoption and support Web3 services in the country.

Tax Violations and Trends: In 2022, Japan's tax authorities identified 548 cases of cryptocurrency-related tax violations out of 615 investigations, representing a 35% increase from the previous year. Despite the rise in violations, the average value of undeclared cryptocurrency holdings decreased by 19%, from 36.5 million yen ($245,000) in 2021 to 30.7 million yen ($206,000) in 2022.

Conclusion: Japan's approval of tax reforms exempting corporations from paying tax on unrealized cryptocurrency gains aligns with the evolving regulatory landscape and aims to foster a conducive environment for digital asset ventures. The revised tax rules are expected to stimulate further innovation in the crypto and Web3 sectors in Japan, providing companies with greater flexibility in managing their cryptocurrency holdings without the burden of immediate taxation on unrealized gains.


(BRAYDEN LINDREA, COINTELEGRAPH, 2023)