In a significant move, the government of Japan has given its nod to a tax reform that brings relief to corporations and conglomerates by eliminating unrealized gains taxes on crypto holdings. The decision is part of the FY2018 tax reform discussions and aims to encourage companies to consistently hold crypto assets.

Key Points of the Tax Reform

The Japanese cabinet recently convened to approve the FY2018 tax reform, introducing crucial changes that impact companies operating in the cryptocurrency space. One pivotal modification involves the removal of the “unrealized gains” crypto tax, which previously required companies to pay taxes based on the price fluctuations of crypto assets each fiscal year.

Expanded Exemption for Crypto Holdings

While a prior change had already exempted companies from the unrealized gains tax on self-issued cryptocurrencies, the recent modification broadens this exemption. Now, companies can hold crypto assets issued by third parties without being subject to unrealized gains taxes.

Crypto Sales and Purchases Still Taxed

Despite these positive changes, the tax reform maintains the taxation of cryptocurrency sales and purchases. This decision contradicts the appeal made by the Japan Crypto Asset Business Association, which advocated for the elimination of taxes on crypto exchanges. The impact of this measure is expected to contribute to a significant reduction in tax-derived income by June 2024, marking the most substantial decrease since 1989.

Simplifying Corporate Crypto Asset Management

The overarching goal of this tax reform, under discussion since early December, is to facilitate corporations in adding crypto to their treasury without incurring taxes solely for holding these assets. Japan, known for applying unrealized crypto gains tax, has faced the challenge of companies opting to hold their crypto assets in other countries to avoid these taxes.

Next Steps in the Legislative Process

Despite the approval, the tax reform must navigate the legislative process. It is set to be presented to the Diet next year, requiring approval from both houses for implementation. This development marks a positive shift in Japan’s approach to crypto taxation, aligning with the growing recognition of the role of cryptocurrencies in corporate treasury management.