Japan's Cabinet Unveils Proposal to Eliminate Corporate Tax on Unrealized Cryptocurrency Profits

The current administration led by Prime Minister Fumio Kishida is actively engaged in developing strategies to nurture the growth of a crucial industry, recognizing its pivotal role in the broader context of economic reform. Recent reports shed light on a pivotal development: the Japanese cabinet has given its approval to a proposal set forth by the ruling Liberal Democratic party. The primary objective of this proposal is to cease the taxation of unrealized gains stemming from cryptocurrencies. This decision is expected to inject significant momentum into the Web3 sector within the country.

The proposal, currently awaiting deliberation in the Diet, Japan's parliament, is designed to abolish corporate taxation concerning the divergence between the market and book values of cryptocurrency assets issued by external entities. Should this proposal transform into law subsequent to its approval on December 22, it would address the existing disparity in the treatment of assets issued by third parties and those held by individuals. Presently, individuals are exempt from taxation based on mark-to-market values. The prevailing tax framework has presented challenges to the expansion of Web3 businesses within Japan.

Prime Minister Fumio Kishida's administration has been diligently examining suggestions put forth by industry associations, such as the Japan Crypto Asset Business Association (JCBA) and Japan Blockchain Association, to identify the most effective approaches for fostering the industry's development. This recognition of the industry as a pivotal element in economic reform is noteworthy, particularly due to the departure from the conventional practice in Japan, where policy development is typically orchestrated by the bureaucracy rather than politicians.

A notable trend has emerged among Web3 enterprises, opting to establish their operations overseas due to the imposition of taxes even before realizing profits. Gaku Saito, the chairman of the JCBA's tax review committee, elaborated in an interview with Bitsday that companies were burdened with taxes on unrealized gains, leading them to liquidate assets and hindering their expansion. This taxation hurdle has prompted a strategic shift for Web3 companies, seeking more favorable environments for their business growth beyond Japan's borders.

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