Companies in Japan may soon be exempt from paying taxes on unrealized cryptocurrency gains, according to a proposal under discussion by the country's ruling coalition. The proposed tax code change would specifically apply to cryptocurrencies held for purposes other than short-term trading. These holdings would be exempt from corporate tax, determined by mark-to-market valuations at the conclusion of each fiscal year.

Fiscal 2024 Tax Reform Plan to Include Cryptocurrency Tax Exemption

The proposal, deliberated by policymakers in the Liberal Democratic Party and their coalition partner Komeito on Tuesday, is set to be incorporated into the fiscal 2024 tax reform plan. This plan is slated to be compiled later this month.

Japan currently stands out as one of the few countries taxing companies based on mark-to-market valuations of their cryptocurrency holdings, excluding self-issued coins. Critics argue that this tax approach is prompting businesses, particularly those holding cryptocurrencies as part of their models, to seek tax-friendly jurisdictions such as Singapore, Dubai, and Switzerland.

Exemption Impact on Specific Business Models

The impact of the proposed exemption is expected to be significant for certain businesses. Notably, venture capital firms and operators of non-fungible token (NFT) businesses, which hold cryptocurrencies for payment purposes, may benefit from the tax relief. It's worth noting that cryptocurrencies and tokens issued by the same company are already exempt from this tax.

In light of these considerations, Japan is reevaluating its tax policies to retain businesses and investments within its borders. The move aligns with global discussions surrounding the taxation of digital assets and the potential benefits of providing favourable tax environments for cryptocurrency-related activities.

Additional Tax Rule Changes Under Discussion

During Tuesday's meeting, ruling coalition policymakers also discussed other potential tax rule changes. One proposal involves extending the measure allowing small and midsize enterprises to deduct up to 8 million yen ($54,000) annually in entertainment expenses, which is set to expire at the end of March 2024.

Moreover, a proposal to modify how foreign visitors are taxed for purchases in Japan was confirmed. The specific details of this change are expected to be determined for fiscal 2024 and beyond.