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Japan Edges Toward Corporate Crypto Tax Reform

Tim Alper
Last updated: | 3 min read
Source: Oka/Adobe

Japan is inching closer to reforming its strict crypto tax laws for corporations – in a bid to stop an “exodus” of crypto talent and capital from flowing overseas.

Pressure to reform has mounted in recent years, with industry figures and opposition leaders alike all calling for change.

More recently, the top financial regulator, the Financial Services Agency (FSA), has signalled that it also wants to modify the restrictive laws. But a final step in this process is approval from the National Tax Agency (NTA).

But while the NTA is yet to publicly signal it will make the change, analysts believe that it is working on a tax reform bill that it hopes to unveil in parliament in the coming months.

Late last week, the NTA released a set of FAQs that address the matter of crypto taxation.

And while these did not directly make mention of any coming reform, Junya Izumi, an Associate Professor of Tax Law at the Chiba University of Commerce, pointed out on Twitter that certain pro-reform nuances were included in the NTA’s document.

For instance, the professor – a crypto tax law specialist – noted, the FAQs appear to indicate that in certain cases, coins that are “locked up” in staking contracts may not be subject to taxation.

As things stand, Japanese law states that companies must pay tax on “paper gains,” positive price changes in tokens’ worth versus fiat. For example, if a company were to hold a token whose worth increased over the course of a financial year, the firm would be liable to pay tax on that coin’s increased value. This would be the case even if the company did not sell its token for fiat.

In other nations, companies often only have to pay taxes when they sell the tokens they hold for fiat.

One-year trading volumes at bitFlyer, one of Japan’s biggest crypto exchanges. (Source: CoinGecko)

Many Japanese firms think this law is unfair, particularly companies that issue and hold coins, or firms that offer staking services.

Speaking to the Japan Times last year, Sota Watanabe, the CEO of the Web3 infrastructure developer Stake Technologies, said that he had “moved his company to Singapore partly because of higher taxes.”

The CEO was quoted as stating:

“Japan is an impossible place to do business. The global battle for a Web 3.0 hegemony is underway, and yet Japan isn’t even at the start line.”

‘Significant’ Timing for Japanese Tax Body, Crypto Firms Await Decision

Izumi, however, claimed that the timing of the FAQs’ release was significant.

The professor mused that “the fact that” the NTA had made the FAQ “information public at this time” might “mean that the content of the [reform] bill is almost finalized.”

Izumi added:

“I do not think the NTA, which is an administrative body, would go out of its way to announce something at this point that could conflict with the bill that the bureau that is in charge of drafting the bill is currently writing.”

Two of the crypto industry’s top representative bodies, the Japan Cryptoasset Business Association (JCBA) and the Japan Virtual and Crypto assets Exchange Association (JVCEA), last year lodged a proposal to the FSA, asking it to lower the cost for companies to issue and hold tokens.

The FSA holds sway over most crypto-related matters. But does not have the final say over tax-related issues.

However, the relatively bullish, pro-Web3 rhetoric of Fumio Kishida, the Prime Minister, could indicate that these long-awaited reforms are finally on the horizon – and could be realized in the coming months.