Japan will introduce a major Crypto Assets tax reform in 2024

Starting in 2024, Japan is likely to remove the crypto tax on unrealized gains on Crypto Assets investments, which will bring a significant shift for investors.

At a recent cabinet meeting on December 22, the Japanese government finalized the outline of crypto tax reform for fiscal year 2024. This reform comes with a significant amendment that affects businesses that hold crypto assets. The amendment abolishes the period-end valuation tax on Market Cap that previously applied to companies holding cryptoassets (Vitual Money) issued by third parties.

As a result, companies will now only tax profits from the sale of Vitual Money and Tokens, in line with the tax regime for individual investors. The amendment aims to reduce the tax burden on businesses involved in holding and operating cryptoassets.

Japan Ends Crypto Assets Tax on Unrealized Profits

The amendment changes the scope of application of the corporate tax law to Market Cap at the end of the period. Previously, businesses recorded profits or losses based on the difference between the market value and the book value of crypto assets at the end of the fiscal year. If the asset is assumed to be held continuously, the new policy does not include Market Cap valuation.

This tax reform responds in part to a 2024 tax reform request submitted by the Japan Crypto Asset Business Association (JCBA). This change will boost the development of Web3, support domestic start-ups to leverage Blockchain technology, and attract international projects.

Last year’s tax reform exempted only Vitual Money issued by businesses themselves from Market Cap-denominated taxes. However, growing calls for equal treatment of Crypto Assets issued by other companies have influenced this year’s revisions.

Will this boost Crypto Assets adoption in Japan?

The 2024 tax reform outline also includes a plan to reduce income tax and resident tax by 40,000 yen per person from June 2024, corporate tax cuts, and the establishment of a new tax system for strategic sectors and innovation. This is likely to lead to a significant drop in national and local government revenues to 3,874.3 billion yen, the third largest decline since fiscal 1989.

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

This tax reform marks a crucial step in introducing a separate tax (20%) and loss carry-over deductions, satisfying the aspirations of Crypto Assets investors. However, discussions on the calculation of gains and losses on cryptoasset transactions, including a one-time tax when converting cryptoassets into Fiat Currency, and consideration of deductions that are “carried forward” for three years from the following year, remain to be discussed. Future deliberations. The development of the corporate tax regime is expected to spur active discussions about further tax reform in the cryptoasset sector.

Japan has always taken a Crypto Assets friendly attitude and therefore remains a top destination for Crypto Assets companies. The country has been carrying out major reforms in a timely manner. Earlier this year, Japan allowed venture capital firms to invest directly in Crypto Assets.