Japan Crypto tax policies drive away Local Firms

Japanese crypto companies face a major challenge as government tax policies could drive them out of the country. Last Dec 10, the government approved a tax plan for 2022 that treats token listings as taxable. This implies that once a token is active on a market, issuers are liable to pay tax even if the token doesn’t sell.

A project that lists a few tokens but holds the rest in treasury is also required to pay taxes on what it holds if the market value increases.

Oftentimes a team will need to sell tokens to the public market earlier than they would prefer just to fund their tax payments. This behavior in turn seriously affects the price and overall health of the project.

Certified tax accountant Kenji Yanagisawa reports that the tax rate for the token issuer is around 35%. If a token issuer airdrops a token, both the issuer and the recipient are taxed. According to Yanagisawa the current policies “will not change for at least another year.”

Due to the crypto tax situation, some project founders have been forced to dissolve their entities and move to other countries.

Mai Fujimoto, the founder of Gracone, a blockchain and cryptocurrency consulting company, said that she knows of eight projects that have moved away from Japan.

Fujimoto has said that the law is problematic as there is no clear definition of an active market. While listings on top exchanges such as Binance are mostly considered as those on active markets, listings on smaller exchanges or decentralized exchanges are still in question.

Last July, the Financial Services Agency (FSA) of Japan announced the launch of a DeFi study group headed by Hideki Kanda. Kanda, a jurist and law professor at Gakushuin University, is joined by a team of legal scholars. However, the agency also enlisted the help of a chief technology officer at LayerX and a Sony executive.

Sota Watanabe, the founder of a multi-chain decentralized application hub, has said that he had to dissolve his Japanese entity in 2021. Luckily, Watanabe already created a separate entity in Singapore last October 2020. He cites that the process cost him roughly $200,000 in legal and accounting fees.

“Web 3, blockchain and crypto [are] going to be the next big movement,” Watanabe said. “We’re going to lose [again] if we don’t change the law on tax.”

CEO of Ryodan Systems AG, Leona Hioki, previously assumed that Japan would encourage a local crypto industry “like China did for the Internet industry.”

“My expectations seem wrong,” he said. Hioki has since migrated to Switzerland, describing it as “neither [an] extreme tax haven nor a crypto chaos jungle.”

“They [politicians and lawmakers] need us to find actual business cases,” said Takeshi Chino, managing director of Kraken Japan.

Source: Coindesk