In a recent revision to the law by the National Tax Agency on June 20, token issuers in Japan have been relieved of the obligation to pay corporate taxes on unrealized cryptocurrency gains. This tax exemption, which comes into effect after the country’s government approved a proposal to eliminate taxes on paper gains of tokens issued and held, aims to facilitate business activities involving token issuance.
Japan exempts token issuers from paying unrealized gains tax
The move to revise tax rules for cryptocurrencies has been under discussion by Japanese legislators since August of the previous year, as part of a broader tax reform for 2023. The final approval from the tax authority was received this week, bringing about a significant change in the tax treatment of token issuers in Japan. Before this revision, even unrealized gains from cryptocurrencies were subject to taxation, resulting in added financial burdens for companies operating in the crypto space.
The ruling Liberal Democratic Party (LDP) anticipates that this tax exemption will make it easier for various companies to engage in token issuance and related businesses. By exempting Japanese firms issuing tokens from the standard 30% corporate tax rate on their holdings, the government aims to encourage innovation and growth within the cryptocurrency industry.
It is worth noting that the country’s cryptocurrency landscape has been undergoing notable transformations recently. Since June 1, the country has been implementing stricter Anti-Money Laundering (AML) measures to ensure greater transparency in cryptocurrency transactions, aligning its legal framework with global standards. In response to the findings of the Financial Action Task Force (FATF), Japan revised its AML legislation in December to address its previous insufficiencies.
Furthermore, in June of the previous 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.
The country is making moves to strengthen its regulatory framework
Japan’s reputation as a pioneer in the cryptocurrency realm remains strong, as it was one of the first countries to legalize cryptocurrencies as a form of private asset. The nation’s regulatory framework surrounding cryptocurrencies is known for being among the most stringent in the world.
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.
The recent tax exemption for token issuers is another significant step in fostering a favorable environment for cryptocurrency businesses in Japan. By alleviating the tax burden on unrealized gains, the government aims to encourage innovation and attract further investment to the country’s thriving crypto industry. These progressive measures, coupled with the stricter AML regulations and stablecoin issuance restrictions, demonstrate Japan’s commitment to ensuring the responsible growth and development of its cryptocurrency sector.
Japan’s decision to waive corporate taxes on unrealized cryptocurrency gains for token issuers marks a significant milestone in the country’s cryptocurrency regulations. The tax exemption is expected to stimulate business activities involving token issuance, ultimately fostering innovation and growth within the Japanese crypto industry. With its robust regulatory framework and proactive approach to evolving global standards, Japan continues to solidify its position as a leading jurisdiction for cryptocurrency-related ventures.
