Key Takeaways
- Under the new tax regime, corporations will only be taxed on profits from the sale of crypto.
- The tax regime will be made effective from April 2024
In a significant move, the Japanese government has greenlit a tax regime overhaul for 2024 that promises a game-changing impact on how corporations deal with unrealized gains from their cryptocurrency holdings. The approval, granted during a cabinet meeting on December 22, sets the stage for the revision to come into effect on April 1, 2024, coinciding with the start of Japan’s financial year.
Under the existing tax setup, Japanese companies find themselves obligated to pay taxes on “unrealized gains” from their cryptocurrency holdings when the fiscal year concludes.
However, the newly approved revision introduces a pivotal change: corporations opting for long-term holdings will now be exempt from this tax burden. The revision does away with the mark-to-market valuation, previously determining profits or losses based on the difference between market value and book value.
Starting April 2024, companies in Japan will only be taxed on the actual profits generated from cryptocurrency sales, offering them more flexibility and tax advantages for engaging in long-term investments.
Before the tax revision becomes official, it must navigate through the parliamentary process, including submission to a regular Diet session in January 2024 and securing approval from both the Lower House and the Upper House of the Japanese Parliament.
The Japanese government had previously unveiled the details of its 2024 tax reform outline on December 14, aiming to create a more favorable environment for cryptocurrency-related activities. The country’s Financial Services Agency had initially proposed eliminating taxes on unrealized cryptocurrency profits on August 31.
This revamped tax framework aligns with Japan’s broader efforts to encourage innovation in the digital asset space. By exempting corporations from taxes on unrealized gains for long-term holdings, the government seeks to stimulate greater participation in Web3-related initiatives.
Notably, this development comes amid Japan’s tax authorities intensifying efforts to address cryptocurrency-related tax compliance. In 2022, they identified 548 cases of tax violations related to cryptocurrencies from 615 investigations, marking a notable increase of 35% compared to the previous year.
