Japan grants tax exemption to token issuers

The National Tax Agency in Japan recently revised a law on June 20, exempting token issuers from paying corporate taxes on unrealized cryptocurrency gains. This revision aims to ease the burden on crypto token issuers and create a more favorable business environment in Japan.

Under the new rules, crypto token issuers are exempt from paying corporate tax on unrealized gains if two conditions are met. Firstly, the tokens must be issued by the firm and continuously held since issuance. Secondly, the tokens must be subject to “transfer restrictions” from issuance.

The proposal for these revisions was approved by Japan’s Liberal Democratic Party’s (LDP) tax committee in December 2022. It was subsequently included in the ruling party’s tax reform outline for 2023, with the final approval from the tax authority granted earlier last week.

Previously, token issuers were required to pay a hefty 30% tax on unrealized gains for tokens they held if those tokens were listed on the open market. This taxation on paper gains imposed a significant burden on crypto firms, as they were forced to pay taxes on profits that had not been realized through actual sales. Consequently, this taxation regime led to an exodus of crypto founders from Japan.

The relaxation of corporate taxes represents a significant step towards creating a more welcoming environment for crypto firms in Japan. Sota Watanabe, the founder of Japan-based Astar Network and a prominent advocate for tax breaks for crypto firms, believes that these revisions will help curb the departure of crypto businesses from the country.

Watanabe expressed his intention to further collaborate with regulators and politicians to improve Japanese crypto firms’ tax rules. Specifically, he highlighted the need to address the end-of-term taxation on tokens issued by other companies, as it currently hinders domestic and international projects.

While the recent revision of the tax laws provides relief for crypto token issuers, it’s important to note that crypto firms are still subject to taxation on paper gains for holding tokens issued by other companies.

Japan’s crypto industry thrives as pivot to Asia gains momentum

Japan’s crypto industry has been undergoing significant changes in recent times. Beginning on June 1, the country has enforced stricter Anti-Money Laundering (AML) measures to align its legal framework with global crypto regulations. Lawmakers revised the AML legislation in December 2022 after the Financial Action Task Force found it insufficient.

Furthermore, the Japanese government passed legislation in June last year prohibiting non-banking institutions from issuing stablecoins. Recently implemented, the bill restricts stablecoin issuance in the country to licensed banks, registered money transfer agents, and trust companies.

Despite these changes, Japan remains a popular destination for crypto businesses as it was one of the first countries to legalize and regulate cryptocurrencies fully. Reports suggest that Japan’s largest bank may enter the stablecoin market.

However, other nations, such as Hong Kong and Singapore, have emerged as friendlier jurisdictions for the crypto industry this year, implementing their regulations and creating welcoming environments for digital assets.

Meanwhile, in the United States, the industry continues to face regulatory scrutiny, with legal actions being taken against companies for failing to comply with the challenging requirement of registering as securities exchanges.

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