Japan cancels tax on unrealized profits from cryptocurrencies! It is expected to promote the development of Web3

Japan’s ruling coalition’s Tax Investigation Committee recently proposed a tax reform proposal that would eliminate the tax at the end of the fiscal year for companies that only hold crypto assets rather than conduct short-term trading. "Unrealized profits tax" based on market value. This proposal is of great significance in reducing the burden on enterprises and promoting the holding and use of crypto assets.

The cancellation of corporate unrealized profits tax will be considered in January next year

According to Coinpost, the Japanese government recently determined the outline of tax reform for fiscal year 2024 at a cabinet meeting on the 22nd, including encryption Tax treatment of assets. Under the new regulations, companies that continue to hold cryptoassets issued by third parties will no longer calculate tax liabilities based on the market value at the end of the fiscal year. Instead, businesses would only be taxed on profits generated from selling crypto assets, similar to the tax regime for individual investors. This change means that companies can reduce their tax burden when holding crypto assets, while also helping to promote the legal use and development of crypto assets.

In past tax reforms, only virtual currencies issued by companies themselves were exempt from unrealized profits tax. But now there are growing calls for the same policy to be applied to virtual currencies issued by third parties.

This tax reform reflects the recommendations of the Japan Cryptoasset Business Association (JCBA) and aims to promote the development of Web3 in Japan and attract domestic and foreign blockchain startups and projects.

Other tax changes include a 40,000 yen reduction in personal income tax and resident tax, corporate tax cuts, and the establishment of new tax systems for strategic sectors and innovation areas. The reforms are expected to result in Japan's third-largest decline in tax revenue since fiscal 1989.

The proposal is expected to be submitted to Congress for review in January next year and requires approval by the House of Representatives and the Senate.

With the further development of the corporate tax system, discussions on separate taxation of crypto-assets and other tax reforms will become more active. The JCBA has made some suggestions on the calculation of profits and losses in crypto asset transactions, including that there is no tax on the exchange of crypto assets, and a one-time tax burden will be imposed on conversions into legal tender. Additionally, they propose a three-year loss carryforward deduction starting next year. These recommendations are still under discussion.

Note: "Loss carry forward deduction" refers to the losses incurred by an enterprise or individual within a fiscal year, which can be deducted from tax profits year by year, thereby reducing future tax burdens.

The issue of high inheritance taxes

In Japan, calls for tax reform on crypto-assets are growing. In addition to the unrealized profits tax issues faced by companies, what is particularly striking is the tax rate Japan imposes on high-value crypto inheritances. Currently, Japan levies an inheritance tax of up to 55% on this type of inheritance, plus the same proportion of income tax, making the total tax burden a staggering 110%.

In addition, if you choose to transfer crypto assets in the form of gift during your lifetime instead of inheritance, the recipient of the gift will also need to face a 55% gift tax and an equal proportion of income tax, and the total tax burden will still be as high as 110%.

Analysts pointed out that under this tax system, heirs need to pay taxes that exceed the value of the estate, which is obviously unreasonable and should be reported to the authorities to change the tax policy. There are even suggestions to consider immigrating to countries with lower taxes, such as Singapore or Dubai, in order to retain part of your crypto legacy.

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