Japan’s National Tax Agency has recently revised its corporate tax rules for issuers of cryptocurrency. The updated regulations exempt crypto token issuers from paying corporate tax on unrealized gains for their holdings as long as two conditions are met. Firstly, the tokens must be issued by the firm and held continuously since issuance. Secondly, the tokens must be subjected to “transfer restrictions” since issuance.

The Liberal Democratic Party’s tax committee approved the proposal for the revisions in December 2022, and it was included in the ruling party tax reform outline for 2023. The tax authority gave the final approval this week. Before the revision, token issuers had to pay a 35% tax on unrealized gains for tokens they held, if the tokens were listed in the open market.

Impact on Crypto Firms

This taxation caused an exodus of crypto founders from Japan, as it put an undue burden on crypto firms who had to pay tax on paper gains, since the holdings were not sold, and the taxable gains were unrealized. In other words, the firms had to pay taxes for profits they did not actually generate.

The relaxation in corporate taxes is a step towards easing the business environment for crypto firms in Japan. The founder of Japan-based Astar Network, Sota Watanabe, who has been actively advocating for tax breaks for crypto firms, said the recent revisions will help stem the exodus. Watanabe said that he would continue to collaborate with regulators and politicians to usher in more favorable tax rules for Japanese crypto firms.

Future Challenges

While the current revision of the tax laws provides relief, crypto firms still have to pay tax on paper gains for holding tokens issued by other firms. Watanabe also expressed his desire to do something about the end-of-term taxation of holding tokens issued by other companies as a corporation, as it is a hindrance to the domestic expansion of projects and domestic projects.

The revision of Japan’s tax rules for cryptocurrency issuers is a positive development for the country’s crypto industry. The exemption from corporate tax on unrealized gains for issuers will ease the burden on these firms and prevent further exodus from Japan. However, there are still future challenges that need to be addressed to create a more favorable tax environment for Japanese crypto firms.


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