The Japanese Financial Services Agency has taken proactive steps to reshape the tax landscape for digital assets within the nation. Notably, the FSA’s proposal aims to liberate domestic companies from the annual “unrealized gains” tax on cryptocurrencies.

Proposed Tax Code Reform by FSA, Support and Potential Impact

On August 31, the principal financial regulator of Japan, the Financial Services Agency (FSA), submitted a groundbreaking proposal according to local report. This 16-page document contains a pivotal suggestion: to exempt domestic companies from the burdensome year-end “unrealized gains” tax on crypto assets.

Unlike in some other countries where taxes are levied only upon the conversion of crypto to fiat, Japan has enforced yearly taxation on these assets.

Encouragingly, the FSA’s proposed amendment has garnered significant support. The Ministry of Economy, Trade, and Industry has expressed its backing for this initiative. The FSA’s rationale behind the reform is clear – to foster a favorable environment for the growth of Web3 and incentivize startups harnessing blockchain technology.

Long-awaited Change

The Japanese crypto industry and its proponents have long clamored for changes to the existing tax regime for digital assets. As a demonstration of their commitment to this cause, the Japan Blockchain Association (JBA), a non-governmental group, presented three major proposals to the Japanese government regarding crypto regulation.

  1. Abolishing Year-End Unrealized Gains Tax

The foremost demand was the elimination of the year-end unrealized gains tax on corporations holding crypto assets. This tax burden has weighed heavily on companies in the industry.

  1. Shift to Self-Assessment Separate Taxation

The second demand was the transition from taxing personal crypto asset trading profits to self-assessment separate taxation, featuring a uniform tax rate of 20%. This change would simplify the tax structure and provide clarity for traders.

  1. Removal of Income Tax on Crypto Asset Exchanges

The third demand called for the removal of income tax on the profits generated from individual crypto asset exchanges. This move would promote active trading and investment in the crypto space.

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