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Japan Edging Toward Crypto Tax Reform

Tim Alper
Last updated: | 2 min read
A woman’s hand holds a token intended to represent Bitcoin against the background of the flag of Japan.
Source: Angelov/Adobe

Japan is moving toward crypto tax reforms, with the nation’s top financial regulator set to change the way it taxes domestic crypto firms.

Per the Japanese media outlet CoinPost and an official Financial Services Agency (FSA) release, the regulator has submitted legislation-change requests to the government.

The FSA wants to modify its crypto corporate tax system to scrap the current “unrealized gains” system for domestic firms.

Under the current Japanese legal system, if a company holds cryptoassets, it must pay tax on unrealized gains (increases in their coins’ value) at the end of each fiscal year.

In other nations, firms only need to pay tax on crypto they sell or swap for fiat.

The media outlet wrote:

“The rule has long been criticized for placing a burden on companies and hindering innovation in the cryptoasset and blockchain sectors.”

The FSA document notes that the Ministry of Economy, Trade, and Industry has also signed off on the reform.

The FSA says that it plans to ask Tokyo to create a legal amendment to reflect its wishes.

Most lawmakers are unlikely to raise any objections to these plans, with the government typically following the lead of the FSA on crypto-related policy matters.

The Japan Blockchain Association (JBA), a major crypto industry group, has also asked the FSA to ensure the tax reforms are also extended to cryptoassets held by third parties.

Sota Watanabe, CEO of Startale, took to X (Twitter), to echo the JBA’s sentiments, and warned of a “crisis” in the domestic crypto industry.

He wrote:

“It’s really important to make these reforms this year. So far, we have seen an outflow of startups overseas. […] I have a feeling that if we do not, Japanese […] companies will leave one after another next year. I think it will lead to the hollowing out of Japanese industry.”

A graph showing trading volumes on the Japanese market-leading crypto exchange bitFlyer over the past 12 months.
Trading volumes on the Japanese market-leading crypto exchange bitFlyer over the past 12 months. (Source: CoinGecko)

Japanese Crypto Tax Reform: Why Now?

The JBA has also called for the FSA to reform the way it taxes individuals, and wants the regulator to allow traders to defer losses.

The industry association also wants Tokyo to waive tax on crypto-to-crypto transactions for individuals.

Some critics also want the government to switch to a flat capital gains rate of 20% on crypto-to-fiat trades, rather than tax crypto as a form of “other income.”

In its release, the FSA explained that the reason for requesting the legal reform was to “improve the environment for the promotion of Web3 and promote business startups that make use of blockchain technology.”

The government is trying to foster a sector that has complained of over-regulation in recent years.

Some lawmakers and business leaders have claimed that previous administrations are taxing Japanese firms out of the domestic markets.

They say over-eager regulators are causing promising fintech startups to move abroad.

But recent events have seen a resurgence in the industry, particularly with Binance trying to force its way into a market traditionally dominated by domestic startups and Japanese securities providers.

In July, the Japanese Prime Minister Fumio Kishida underlined his government’s commitment to nurturing the country’s Web3 and blockchain sectors.

Earlier this year, the government approved the adoption of the FATF’s Travel Rule, with a new law promulgating in June.