Japanese Token Issuers Are Now Exempt from Corporate Tax on Unrealized Gains

The tax break is good news for Japanese cryptocurrency firms, which still have to pay taxes on paper gains from tokens issued by other companies.

Japan’s National Tax Agency revised its corporate tax rules for cryptocurrency issuers earlier this week. The revised rules exempt cryptocurrency issuers from paying corporate tax on unrealized gains they hold.

The exemption applies in two cases, according to local news reports. First, tokens must be issued by the company itself and held continuously since issuance. Second, tokens must be subject to "transfer restrictions" from the date of issuance.

The Japanese Liberal Democratic Party's tax committee approved the revision proposal in December 2022 and incorporated it into the ruling party's 2023 tax reform outline, and the tax authorities made final approval this week.

Before the revision, token issuers had to pay a 35% tax on unrealized gains on token holdings if tokens were listed on the open market. Assets held are taxed at the end of the tax period.

This high tax puts an undue burden on cryptocurrency companies, which have to pay taxes on book gains, and because the assets held are not sold, the taxable gains are not realized. In other words, companies have to pay taxes on profits they didn't actually generate. Thus, taxes cause crypto founders to leave Japan.

The relaxation of corporate taxes is a step toward relaxing the business environment for cryptocurrency companies in Japan. Sota Watanabe, founder of Japan’s Astar Network, who has been an active advocate for tax breaks for cryptocurrency companies, said the recent amendments would help stem the flow of funds.

Watanabe said he will continue to work with regulators and politicians to introduce more favorable tax rules for Japanese cryptocurrency companies. He continued:

“Next, I want to do something about the end-of-period taxation of holding tokens issued by other companies as a company, because it is a hindrance to domestic projects and the expansion of domestic projects.”

While current tax law changes provide some relief, cryptocurrency companies still have to pay taxes on paper gains from holding tokens issued by other companies.