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Before the announcement, experts noted that Japan lacked a crypto-friendly environment to help Japanese crypto start-ups thrive in the nation.
Japan’s Financial Services Agency has proposed holistic tax reforms relating to cryptocurrency firms. The proposal seeks to adjust the cryptocurrency tax policy for corporate organizations and provide a more crypto-friendly environment for start-ups. Moreso, the proposal suggests a new tax framework under which only profitable crypto start-ups are taxable.
What the Tax Reforms Entail
Current tax laws mandate that unrealized gains be classified as income by the end of the Japanese fiscal year (March 31). This allows for income tax liabilities. Also, the law classifies any crypto earning over 200,000 JPY as miscellaneous income, warranting a tax rate of up to 55%.
As part of the suggested reform, all capital gains for undisposed corporate crypto assets at the end of every taxation year should be removed. Again, the proposal calls for the reclassification of digital assets, so the maximum tax rate on capital gains will be 20%. Previously, the rate on capital gains could be as much as 55% whereas profit from forex trading and stocks attracted a maximum of 20%.
That’s not all. Foreign Japanese residents will pay 55% and above as tax rates for all crypto-related income. There is also no allowance for pushing forward capital losses into a new fiscal year.
Before the announcement, experts noted that Japan lacked a crypto-friendly environment to help Japanese crypto start-ups thrive in the nation. These start-ups have been relocating their headquarters outside Japan. They’ve also been running their corporate structures and operations abroad.
For instance, Astar Network has its headquarters in crypto-friendly Singapore. The firm issued its tokens overseas earlier this year, avoiding stringent tax payments. Commenting on the proposed tax reform, the Founder of Aster network, Sota Watanabe, said, “good momentum for the Web3 industry, although it’s still in the middle of the road.”
The decision to review tax rules follows the FSA’s announcement that trust banks can now manage cryptocurrencies. According to the FSA, the move aims to boost crypto adoption, protect investors, and improve investor confidence. Implementation is set to begin in Autumn.
Likewise, Japan was among the early countries to propose regulations for stablecoins. The government proposed the regulations after TERRAUSD (UST) and LUNA wiped off the investment of many people. Implementing these latest tax reforms will most certainly make the environment more crypto-friendly.