Japan’s Financial Services Agency is reportedly pondering the decision to adjust the virtual currency taxation system for corporate establishments prior to the nation’s 2023 tax reform.

Specifically, the amendment in the proposal reportedly comes with removing capital gain liabilities for undisposed corporate crypto assets at the end of every taxation year, together with adjusting the classification of crypto assets so the maximum capital gains tax applicable is reduced to 20% from 55%. 

Within the scope of Japan’s existing taxation regulations, unrealized capital gains on virtual currencies are legally viewed as income at the end of every fiscal year (on March 31), consequently resulting in income tax liabilities. 

Furthermore, both individual and corporate crypto earnings exceeding the 200,000 JPY ($1,463) benchmark in any given fiscal year are classified as “miscellaneous income,” with a tax rate applicable ranging from 15% to 55%, with the local inhabitant’s tax rate included. 

In comparison, profits earned from stock and forex trading are only subjected to a tax of 20% at the highest levels.

Permanent residents from outside the nation of Japan also have to be placed under the scope of the nominal rates of 55% upwards. All crypto-income generating activities, nominally decentralized finance lending, Bitcoin mining, or plain cryptocurrency trading, will be subjected to taxes, per miscellaneous income. 

It is also not possible to carry forward any capital losses resulting from crypto operations in the years forward.

Professionals in the sector reportedly claimed that the high tax liabilities applicable for Japanese crypto startups are a significant factor in shifting their corporate domiciles abroad. 

One such company, Astar Network, a decentralized network hub on Polkadot, planned on the issuance of its tokens overseas in the year 2022 to steer clear from stringent tax payments and is currently headquartered in Singapore.