Japan Takes a Bold Step in Embracing Crypto

In a pivotal decision, Japan's ruling coalition has proposed a tax code amendment that would exempt companies from paying tax on unrealised cryptocurrency gains if they hold on to the digital assets. This move marks a significant shift in the country's approach to cryptocurrency taxation, aiming to foster innovation and encourage the growth of the nascent industry.

Exempting Long-Term Holdings from Corporate Tax

The proposed tax code change would specifically exempt cryptocurrencies held for purposes other than short-term trading from corporate tax based on mark-to-market valuations at the end of each fiscal year. This means that companies holding cryptocurrencies as part of their long-term investment strategies or business operations will no longer be subject to taxation on the unrealised gains of these assets.

Addressing Regulatory Uncertainty

Japan's current tax regime, which taxes companies based on mark-to-market valuations of their cryptocurrency holdings, has been criticised for creating regulatory uncertainty and deterring investment in the sector. The proposed exemption seeks to address these concerns by providing a more favourable tax environment for companies actively involved in the cryptocurrency space.

Encouraging Domestic Cryptocurrency Growth

The decision to exempt long-term cryptocurrency holdings from corporate tax is expected to have a positive impact on the growth of the domestic cryptocurrency industry. By reducing the tax burden on companies holding cryptocurrencies, Japan hopes to attract more investment and foster innovation in the sector.

Easing Tax Burden on Small Businesses

In addition to the cryptocurrency tax exemption, the ruling coalition also discussed extending a measure to allow up to 8 million yen (S$72,824) a year in deductible entertainment expenses for small and midsize enterprises beyond its current expiration at the end of March 2024. This measure is aimed at easing the tax burden on small businesses and supporting their recovery from the COVID-19 pandemic.

Reviewing Foreign Visitor Taxation

Furthermore, ruling coalition policymakers confirmed a proposal to change how foreign visitors are taxed for purchases in Japan. Details of this proposal will be finalised in fiscal 2024 onward. The aim of this change is to simplify the tax process for foreign visitors and encourage tourism spending.

Conclusion

Japan's proposed tax code changes signal a shift towards a more supportive regulatory environment for cryptocurrencies. By exempting long-term cryptocurrency holdings from corporate tax, the government hopes to foster innovation, attract investment, and encourage domestic cryptocurrency growth. The proposed changes also demonstrate the government's commitment to supporting small businesses and enhancing the tourism sector.