Japan Unveils Crypto Tax Overhaul to Spur Long-Term Investments and Boost Web3

Japan is set to overhaul its tax regulations for corporations holding third-party cryptocurrencies, a development reported by local media.

The newly approved tax regime, greenlit by the cabinet on Friday, aims to incentivize long-term investments in crypto assets and provide a supportive environment for the growth of Web3 businesses.

Under the existing system, corporations face taxes on the disparity between the market and book values of their crypto holdings at the fiscal year’s end. This entails taxation on unrealized gains or losses, irrespective of whether the assets are retained or sold.

Breaking: Japan ends crypto tax on unrealized profit👀

HUGE NEWS.

— MartyParty (@martypartymusic) December 24, 2023

Effective in fiscal year 2024, the proposed revision will exempt corporations from the mark-to-market valuation, provided they retain the crypto assets for an extended period.

While the exact definition of “long-term” remains unclear, it is anticipated to extend beyond one year, as per reports from Nikkei and CoinPost. Corporations, under this change, will only be taxed on profits realized from the sale of crypto assets.

However, the exemption does not extend to crypto assets categorized as short-term holdings, such as those utilized for trading or speculation. Such assets will still be subject to year-end unrealized gains taxation, given their potential for price fluctuations and tax evasion concerns.

New Tax Regulation By Japan Is “Extremely Important for Web3”

This revision signifies a positive step by the Japanese government to foster the development of Web3, denoting the decentralized and user-centric internet powered by blockchain and related technologies. Web3 holds the promise of introducing novel business models, social innovations, and reducing the dominance of major tech platforms.

Daiki Moriyama, Director of Oasys, a gaming blockchain builder in Japan and Singapore, hailed the tax reform in an interview with The Block as “extremely important to all Web3 business stakeholders worldwide.”

Moriyama emphasized that Japan’s consistent efforts in enacting tax reforms for web3 businesses for the second consecutive year highlight the government’s commitment to their growth.

This revision follows the earlier clarification by the country’s tax agency in June, exempting crypto issuers, including startups creating their tokens, from the 35% capital gains tax on unrealized gains. This move was geared towards enhancing innovation and competitiveness within the Web3 sector.