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Japanese Regulator Wants to Reform Crypto Tax Laws for Companies & Investors

Tim Alper
Last updated: | 2 min read
Source: Adobe/amirul syaidi

 

Japan’s top financial regulator, the Financial Service Agency (FSA), has indicated that it is prepared to reform the nation’s tax laws that govern the way firms and their investors are taxed on their interactions with crypto.

The reforms are a response to the pro-IT sector growth drive instigated by Prime Minister Fumio Kishida, who has repeatedly stated that Web3-related industries have the power to spark an economic upturn. Kishida has also spoken out in favor of reviewing crypto-related tax laws this year.

Critics, including leading politicians – some from within the government – have suggested that many Japanese companies are seeking to relocate overseas due to restrictive tax laws, which seek to levy crypto as a form of income – rather than a capital gain for individuals. For companies, crypto is often levied under corporation tax laws.

The law also dictates that companies must pay tax on so-called “paper gains” – upward changes in tokens’ worth versus fiat. This means that, for instance, if a company were to issue a token whose worth then increased over the course of a year – even though the same company does not sell its tokens for fiat – it would be liable to pay tax on the increased worth of the token.

In other nations, companies might only have to pay taxes when they “realize” the worth of their coin holdings – i.e. sell them for fiat.

Per the media outlets CoinPost and Bloomberg, The FSA has also indicated that it wants to allow individual investors in crypto companies to enjoy tax breaks. Retail investors will also be buoyed by the news that the FSA wants to allow them access to the Nippon Individual Savings Account (NISA) tax break program – which could allow them to exempt up to USD 2,900 worth of assets from capital gains tax.

The cloud to this silver lining, from a crypto perspective, is that it is not clear if this will apply to crypto investments outside the security tokens space.

The FSA’s requests are not binding, and the regulator’s proposals will need to be reviewed by a parliamentary tax commission that will not convene for several months. However, the FSA is arguably the single biggest crypto policy influence in the country, with the possible exception of the Prime Minister – a fact that means the proposals will very likely be accepted.

Private sector bodies – including the self-regulatory Japan Virtual Currency Exchange Association (JVCEA) – earlier this month called for urgent tax reform. The JVCEA and its partners also called upon Tokyo to simplify the tax return process for crypto investors.
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