With Japan’s top financial regulator planning to alter how it taxes domestic crypto companies, here is what you must know about the new Japanese crypto tax reform.

The regulator has asked the government to modify the law, according to a Financial Services Agency (FSA) announcement and the Japanese media outlet CoinPost. The FSA wants to change the “unrealized gains” approach that now applies to domestic businesses in its cryptocurrency corporate tax system.

Under the existing Japanese legal system, a firm with crypto assets must pay tax on unrealized gains (increases in the value of their coins) at the end of each fiscal year. In other countries, businesses must pay taxes on the cryptocurrency they sell or exchange for money.

The news source reported:

“The rule has long been criticized for burdening companies and hindering innovation in the crypto asset and blockchain sectors.”

Approval For the New Japanese Crypto Tax Reform

What You Must Know About The New Japanese Crypto Tax Reform

Signage for the Financial Services Agency (FSA) headquarters is displayed in Tokyo, Japan, on Tuesday, Feb. 13, 2018. Cryptocurrency exchange Coincheck Inc., which lost about $500 million to hackers last month, faced a deadline Tuesday to explain how the hack occurred and plans for improving its security to regulators at Japan’s FSA.

According to the FSA document, the Ministry of Economy, Trade, and Industry has also approved the reform. According to the FSA, it intends to request that Tokyo alter its law to reflect its desires.

Since most politicians generally follow the FSA’s lead on crypto-related policy issues, they are unlikely to protest these plans.

The Japan Blockchain Association (JBA), an essential crypto industry body, has also requested that the FSA extend the tax revisions to crypto assets held by third parties.

The CEO of Startale, Sota Watanabe, echoed the JBA’s concerns and warned of a “crisis” in the local crypto market on X (formerly Twitter).

He stated:

“It’s imperative to make these reforms this year. So far, we have seen an outflow of startups overseas. I have a feeling that if we do not, Japanese companies will leave one after another next year. I think it will lead to the hollowing out of Japanese industry.”

The Reason for The New Japanese Crypto Tax Reform

What You Must Know About The New Japanese Crypto Tax Reform

The JBA has urged the FSA to change how it taxes people and to permit traders to postpone losses. The trade group also requests that Tokyo exempt individuals from paying tax on crypto-to-crypto transactions.

In addition, a few critics prefer that the government tax cryptocurrency as a type of “other income” rather than switching to a flat capital gains rate of 20% on trades between cryptocurrencies and fiat.

According to the FSA’s press release, the goal of the requested legislation change was to “improve the environment for the promotion of Web3 and business startups that use blockchain technology.” The government is trying to assist a sector that has recently grumbled about over-regulation.

According to certain legislators and business executives, prior administrations have taxed Japanese companies out of the local markets. They claim that optimistic fintech businesses are leaving the country due to overzealous regulators.

However, recent events have witnessed a comeback in the sector, especially as Binance tries to reshape a market that domestic entrepreneurs and Japanese securities providers have hitherto dominated.

Fumio Kishida, the prime minister of Japan, reaffirmed his country’s commitment to fostering the Web3 and blockchain industries in July.

The government agreed to adopt the FATF Travel Rule earlier this year, and the new rule became effective in June.

In our opinion, this reformation will have a tremendous positive impact on the finance sector in Japan as the relocation of fintech companies will stop. Also, crypto investors in Japan will no longer have to pay taxes because of the increase in the value of their coins. Overall, this reform will further encourage crypto investments and widespread crypto adoption in the Asian continent because Japan is one of the continent’s leading technology and web3-based countries.