Japan’s Financial Regulator Proposes Change in Tax Code

Jimmy Aki
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The Japanese Financial Services Agency is proposing revisions to tax regulations related to digital assets. The regulatory authority aims to exempt local companies from the annual tax on unrealized gains in the cryptocurrency market.

Japan’s FSA Seeks Tax Changes for Digital Assets

On August 31, Japan’s Financial Services Agency (FSA) unveiled its recommendations for tax reforms in the fiscal year 2020.

The document, as reported by local media, primarily focused on revisions for corporate taxes concerning the crypto asset (virtual currency) tax system.

The regulatory body has urged the government to thoroughly review year-end mark-to-market valuation taxation concerning “crypto assets held by third parties,” a contentious issue that has persisted for some time.

This recommendation aligns with a similar call from the Ministry of Economy, Trade, and Industry. This could be a big boost toward acceptance of the tax reform request.

The FSA also noted that under the previous Japanese law, companies holding crypto assets were subject to uniform taxation of unrealized gains at the close of the fiscal year.

However, this practice has faced sustained criticism for burdening companies and stifling innovation within the crypto asset and blockchain sectors.

Therefore, regarding this corporate tax regulation, the 2025 tax reform introduced provisions that allow crypto assets issued by a company to be excluded from market valuation if specific conditions are met.

As noted by the Financial Services Agency, the purpose behind seeking this revision is to enhance the ecosystem for advancing Web3. In addition, it will also facilitate the establishment of businesses leveraging blockchain technology.

FSA Tax Reform Gains Support

The recent development marks a significant stride in Japan’s cryptocurrency tax reform. For a while now, proponents of the cryptocurrency sector in Japan have been urging a reevaluation of the country’s tax regulations concerning digital assets.

In July 2023, the Japan Blockchain Association (JBA) also brought up the issue of tax reform on cryptocurrency assets held by third parties on its website.

The group outlined three key modifications that could be implemented to alleviate pressure on the digital economy.

The first proposal involves doing away with the year-end unrealized gains tax that applies to corporations holding cryptocurrency assets. Unrealized profits are gains that exist on paper but haven’t yet been realized through completed transactions.

Notably, in June 2023, Japan’s National Tax Agency already exempted local businesses from taxation on year-end unrealized gains on cryptocurrencies they had issued.

The second request pertains to the taxation approach for personal crypto asset trading profits. It suggests transitioning from the current comprehensive taxation system to self-assessment separate taxation, featuring a uniform tax rate of 20%.

Furthermore, it recommends allowing three years to deduct losses stemming from the depreciation in the value of digital assets.

Lastly, the JBA is pushing for the abolition of income tax on the profits accrued each time an individual conducts crypto asset exchanges.

This change is expected to encourage new entrants into the Web3 industry and create a more favorable environment for domestic corporations to engage in Web3 businesses.

In addition, Sota Watanabe, the founder of Aster Network (ASTR), which is a prominent advocate for enhancing the Web3 business landscape in Japan, expressed his endorsement of the FSA’s call for a revision.

Sota emphasized the critical need for this revision to take place this year. He noted that the current trend has seen startups relocating abroad while having crypto assets in Japan appears incongruous.

The Aster Network founder added that there is a palpable concern that without a revision this year, Japanese major corporations may begin to exit in succession next year.

This trajectory, he believes, could result in the erosion of Japan’s industrial base, underscoring the importance of recognizing the urgency of this situation.

About Jimmy Aki PRO INVESTOR

Based in the UK, Jimmy is an economic researcher with outstanding hands-on and heads-on experience in Macroeconomic finance analysis, forecasting and planning. He has honed his skills having worked cross-continental as a finance analyst, which gives him inter-cultural experience. He currently has a strong passion for regulation and macroeconomic trends as it allows him peek under the global bonnet to see how the world works.