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Japan Heads Towards Crypto Industry Tax Regime Reform

Japan is moving towards a reform of its strict cryptocurrency tax laws for businesses, in a bid to stem the exodus of talent and capital overseas.

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

More recently, the main financial regulator, the Financial Services Agency (FSA), has indicated that it also wants to make changes to the law. But the last step in this process is approval from the National Tax Agency (NTA).

While the NTA has yet to issue an official statement on the change, analysts believe the agency is working on a tax reform bill that could be unveiled in parliament in the coming months.

At the end of last week, the NTA published a series of FAQs on the issue of taxation of cryptocurrencies.

And while these don't directly mention an upcoming reform, Junya Izumi, associate professor of tax law at Chiba University of Commerce, pointed out on Twitter that some pro-reform nuances were included. in the NTA document.

The professor noted the example of tokens placed in staking: the FAQ seems to indicate that, in certain cases, tokens that are "locked" in staking contracts may not be subject to tax.

As it stands, Japanese law stipulates that companies must pay tax on "paper gain", i.e. positive changes in the value of tokens against the currency. fiduciary. For example, if a company holds a token that has increased in value during a financial year, it is liable to pay taxes on the increased value of that coin. This would be the case even if the company did not sell its token for fiat currency.

In other countries, most of the time, companies only have to pay taxes when they sell the tokens they hold for cash.

Many Japanese companies believe that this law is abusive, especially companies that issue and hold tokens, or companies that offer staking services.

In an interview with the Japan Times last year, Sota Watanabe, CEO of Web3 infrastructure developer Stake Technologies, said he "moved his company to Singapore partly because of higher taxes."

The CEO reportedly said:

"Japan is a country where it's impossible to do business. The global race for Web 3.0 hegemony is going on right now, and yet Japan isn't even at the starting line."

Significant timing for Japanese tax body, crypto companies await decision

Izumi, however, said the timing of the FAQs was not a coincidence.

The professor said that "the fact that" the NTA has released "the FAQ information at this stage" could "mean that the content of the [reform] bill is almost finalized."

Izumi added:

"I don't think the NTA, which is an administrative body, would bother at this stage to make any announcement that might conflict with the bill currently in the works."

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

The FSA has some influence on most issues related to cryptocurrencies. but does not have the final say on tax issues.

However, the relatively optimistic and pro-Web3 rhetoric from Fumio Kishida, the Prime Minister, could indicate that these long-awaited reforms are finally on the horizon – and could materialize in the months to come.

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