Starting in 2024, Japan may eliminate the cryptocurrency investment tax on unrealized gains, bringing major changes to investors.
At a recent cabinet meeting, the Japanese government finalized the outline of crypto tax reform for fiscal year 2024. The reform package contains an amendment that has significant implications for businesses holding crypto assets. The amendments eliminate the period-end mark-to-market valuation tax that previously applied to companies holding crypto-assets (virtual currencies) issued by third parties. The decision will enable businesses to calculate the value of their crypto-asset holdings at the end of the reporting period based on actual purchase cost rather than market value. The purpose of this amendment is to alleviate the tax pressure that businesses may face during their holdings of crypto assets and provide them with a more equitable and sustainable tax policy.
As a result, companies will now only tax profits from virtual currency and token sales to maintain consistency with the tax regime for individual investors. The purpose of this amendment is to reduce the tax burden on businesses that hold and operate crypto assets.
The revised corporate tax law changes the scope of application and no longer records profits or losses based on the difference between the market value and book value of crypto assets at the end of the fiscal year . The new policy also no longer includes mark-to-market valuations and only applies to ongoing holdings.
This tax reform responds to a certain extent to the 2024 tax reform request submitted by the Japan Cryptoasset Business Association (JCBA), providing impetus for the development of Web3. This change will support domestic start-ups to utilize blockchain technology and attract international projects, creating favorable conditions for the further development of the blockchain industry.
Last year’s tax reform exempted only virtual currencies issued by companies themselves from mark-to-market tax. However, growing calls for equal treatment of cryptocurrencies issued by other companies had an impact on this year’s revision.
The 2024 tax reform outline also covers a number of measures, including a plan to reduce income tax and resident tax by 40,000 yen per person from June 2024, as well as tax cuts for companies and support for strategic sectors and Planning for establishing new tax systems in innovative areas. However, these reform measures are likely to result in a significant decline in national and local government revenue, estimated at 3,874.3 billion yen, the third largest decline since fiscal 1989. Such a fiscal impact is a major challenge for the government, which requires effective measures to balance the fiscal balance.
The bill requires approval by the House and Senate.
This tax reform marks a key step towards the introduction of separate taxation (20%) and loss carryforward deductions, fulfilling the wishes of cryptocurrency investors. However, discussions on the calculation of gains and losses from crypto-asset transactions, including the imposition of a one-time tax when converting crypto-assets into fiat currency and the consideration of “carrying forward” deductions for three years from the following year, are still to be discussed. future deliberations. Developments in the corporate tax regime are expected to stimulate active discussions on further tax reform in the crypto-asset sector.
Japan has always adopted a cryptocurrency-friendly attitude and therefore remains a top destination for cryptocurrency companies. The country has been undertaking major reforms in a timely manner. Earlier this year, Japan allowed venture capital firms to invest directly in cryptocurrencies.
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