Japan to Introduce Major Cryptocurrency Tax Reform in 2024

Beginning in 2024, Japan will likely eliminate the crypto tax on unrealized gains from cryptocurrency investments, which would be a major shift for investors.

At a recent cabinet meeting on December 22, the Japanese government finalized the outline of a crypto tax reform for the 2024 fiscal year. The reform comes with a major amendment affecting businesses that hold crypto assets. The amendment eliminates the end-of-period mark-to-market valuation tax that previously applied to companies holding crypto assets (virtual currencies) issued by third parties.Bitmain Miner

As a result, companies will now be taxed only on profits from the sale of virtual currencies and tokens, in line with the tax regime for individual investors. The amendment aims to reduce the tax burden on companies involved in holding and operating crypto assets.

Japan Ends Cryptocurrency Tax on Unrealized Profits

The amendment changes the scope of application of the end-of-period mark-to-market value of the corporate tax law. Previously, companies recorded 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 excludes mark-to-market valuations if the asset is assumed to be held continuously.

The tax reform is in part a response to the 2024 tax reform request submitted by the Japan Crypto Asset Business Association (JCBA). The change will boost Web3, support domestic startups utilizing blockchain technology, and attract international projects.

Last year’s tax reform only exempted virtual currencies issued by companies themselves from mark-to-market taxation. However, growing calls for equal treatment of cryptocurrencies issued by other companies influenced this year’s revision.

Will this boost cryptocurrency adoption in Japan?

The 2024 tax reform outline also includes a plan to reduce income and residential taxes by 40,000 yen per person from June 2024, corporate tax cuts, and a new tax system for strategic sectors and innovation. This is likely to lead to a significant drop in state and local government revenues to 387.43 billion yen, making it the third-largest drop since fiscal 1989.Whatsminer Miner

The bill requires the approval of the House of Representatives and the Senate.

This tax reform marks a key step in introducing separate taxation (20%) and loss carry-forward deductions, fulfilling the wishes of cryptocurrency investors. However, discussions on the calculation of gains and losses from crypto-asset transactions, including a one-time tax on the conversion of crypto-assets to fiat currencies and the consideration of a three-year deduction to be “carried forward” from the following year, remain to be discussed. Future Considerations. Developments in the corporate tax regime are expected to stimulate active discussions on further tax reforms in the crypto-asset space.

Japan has always taken a cryptocurrency-friendly approach and therefore remains a preferred destination for cryptocurrency companies. The country has been making timely and significant reforms. Earlier this year, Japan allowed venture capital firms to invest directly in cryptocurrencies.