Japan’s Blockchain Association, represented by BitFlyer co-founder Yuzo Kano, submitted three key tax reform proposals to the government on July 27th. These proposals aim to foster growth in the Web3 and cryptocurrency sectors by addressing critical taxation challenges.
Key Tax Reform Proposals
- Abolishing Year-End “Unrealized Gains Tax”
- Reforming Crypto Trading Profit Taxation
- Eliminating Taxes on Crypto-to-Crypto Transactions
These reforms seek to enhance Japan’s competitiveness in blockchain innovation while simplifying tax compliance for businesses and investors.
1. Abolishing Unrealized Gains Tax for Third-Party Crypto Assets
Japan’s National Tax Agency previously relaxed rules on taxing unrealized gains for corporate-held cryptocurrencies, provided two conditions are met:
- The asset is issued by the company itself and held since issuance.
- The asset has transfer restrictions or meets certain trust asset criteria.
However, companies holding third-party-issued cryptocurrencies remain subject to unrealized gains taxation.
The Blockchain Association now urges the government to extend the exemption to all crypto assets, arguing that the current policy stifles Web3 adoption.
👉 Why unrealized gains tax reform could boost Japan’s Web3 economy
Industry Impact:
Removing this barrier could attract more blockchain startups to Japan, fostering innovation in decentralized finance (DeFi) and digital asset management.
2. Reforming Crypto Trading Profit Taxation
The Association proposes:
- Uniform 20% Tax Rate: Replace the current progressive tax (up to 55%) with a flat rate, aligning crypto with stocks and bonds (15% national + 5% local tax).
- Loss Carryforward: Allow trading losses to offset taxes for up to three years, encouraging long-term investment.
Current System vs. Proposed Changes:
| Aspect | Current System | Proposed Reform |
|---|---|---|
| Tax Rate | Progressive (up to 55%) | Flat 20% |
| Loss Deduction | No carryforward | 3-year loss offset |
| Reporting | Annual aggregation | Per-transaction basis |
This shift could make Japan more competitive with crypto-friendly hubs like Singapore and Switzerland.
3. Eliminating Taxes on Crypto-to-Crypto Transactions
Taxing every crypto exchange (e.g., BTC to ETH) creates complexity and discourages usage. The Association highlights:
- Operational Burden: Tracking profits for each swap is impractical.
- Web3 Readiness: As tokenized assets grow, seamless interoperability is vital.
Example: Under current rules, converting Bitcoin to Ethereum triggers a taxable event, even if no fiat is involved. The reform would remove this friction.
👉 How Japan’s crypto tax reforms compare globally
FAQs
1. What is the “unrealized gains tax” in Japan?
It’s a levy on paper profits from crypto holdings at year-end, even if no sale occurs. The reform seeks to exempt third-party assets.
2. How would the 20% flat tax rate benefit traders?
High-income earners currently pay up to 55%. A flat rate simplifies compliance and reduces liabilities.