Japan’s National Tax Agency revised the corporate tax rules for cryptocurrency issuers earlier this week. The revised rules exempt crypto token issuers from paying corporate tax on unrealized gains for their holdings.

The exemptions are applicable under two conditions, according to a local news report. Firstly, the tokens must be issued by the firm itself and held continuously since issuance. Secondly, the tokens must be subjected to “transfer restrictions” since issuance.

Japan’s Liberal Democratic Party’s (LDP) tax committee approved the proposal for the revisions in December 2022. It was included in the ruling party tax reform outline for 2023 and the tax authority gave the final approval this week.

Prior to the revision, token issuers had to pay a 35% tax on unrealized gains for tokens they held, if the tokens were listed in the open market. The holdings were taxed at the end of the taxation period.

This steep taxation put an undue burden on crypto firms, who had to pay tax on paper gains — since the holdings are not sold, the taxable gains were unrealized. In other words, the firms had to pay taxes for profits they did not actually generate. Therefore, the taxation caused an exodus of crypto founders from Japan.

The relaxation in corporate taxes is a step towards easing the business environment for crypto firms in Japan. Founder of Japan-based Astar Network, Sota Watanabe, who has been actively advocating for tax breaks for crypto firms, said the recent revisions will help stem the exodus.

Watanabe said that he would continue to collaborate with regulators and politicians to usher in more favorable tax rules for Japanese crypto firms. He added:

“Next, I would like to do something about the end-of-term taxation of holding tokens issued by other companies as a corporation, as it is a hindrance to the domestic expansion of projects and domestic projects.”

While the current revision of the tax laws provides a relief, crypto firms still have to pay tax on paper gains for holding tokens issued by other firms.

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