Global: Japan’s Financial Regulator Proposes Overhaul of Crypto Taxation

The Financial Services Agency (FSA), Japan’s leading financial regulator, is spearheading a drive to reform cryptocurrency taxation within the country. In a move aimed at streamlining and improving regulations surrounding digital assets, the FSA submitted a formal request on August 31 to amend the existing tax code.

The most significant proposal within the comprehensive 16-page document is the exemption of domestic companies from the current “unrealized gains” tax on cryptocurrencies, typically levied at the end of each fiscal year. Under the current system, Japanese legal entities are subject to annual taxes on their cryptocurrency holdings, even if these assets remain unsold and are not converted into fiat currency. The FSA’s amendment seeks to bring Japan in line with many other countries where taxes on crypto assets are only applicable once they are converted into traditional fiat currency.

The FSA’s proposal is expected to gain acceptance, as the agency has received backing from the Ministry of Economy, Trade, and Industry for this revision.

As the FSA detailed in its official release, this reform is aimed at “enhancing the environment for fostering Web3 technologies and encouraging startups that leverage blockchain technology.”

Advocates of the cryptocurrency industry in Japan have long been calling for revisions to the national tax framework governing digital assets. In late July, the Japan Blockchain Association (JBA), an independent non-governmental organization, submitted a request to the Japanese government for three key changes to cryptocurrency regulations.

The first request is the elimination of the year-end unrealized gains tax imposed on corporations that hold cryptocurrency assets. The other two proposed changes involve transitioning from the current system of taxing personal cryptocurrency trading profits to a self-assessment approach with a uniform tax rate of 20%, as well as abolishing income tax on profits generated through cryptocurrency asset exchanges.

These proposed changes signal Japan’s growing recognition of the importance of fostering a favorable environment for the cryptocurrency and blockchain sectors, in line with global trends.