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Japan’s taxation scheme driving crypto businesses out of the country

Japan’s recently approved tax plan might negatively impact the country’s crypto sector.

Tokyo, Japan / Image by: Wikimedia Commons

Mon, 27 Dec 2021, 03:14 am UTC

Japan’s recently approved tax plan might negatively impact the country’s crypto sector. Crypto firms are now requesting authorities to change tax policies that they described as driving them out of the country.

Japan approved a tax plan for the fiscal year 2022 on December 10 that continues to tax token listing, according to Coindesk. This means that issues will have to pay tax once tokens are listed even if they don’t sell.

The government will also tax tokens kept in treasury and not circulating in exchange if their market value appreciates. This means that if the project especially early-stage startups can’t pay the taxes, they will be forced to sell more tokens to the public to raise the funds for tax payments, which will ultimately affect the trajectory and health of the project and negatively impact the token’s price. Moreover, both issuers and recipients of airdrops will be taxed.

According to certified tax account Kenji Yanagisawa, the tax rate for issuers is around 35 percent. He added that this taxation regime “will not change for at least another year.”

However, this taxation scheme has driven some crypto companies to close their operations in the country and relocate elsewhere. According to Mai Fujimoto, the founder of blockchain and crypto consulting firm Gracone, at least eight projects have already left Japan.

Sota Watanabe, the founder of the multi-chain decentralized application (dapp) hub Astar Network, said that high taxes and unclear regulation are problems in Japan. He decided to create an entity in Singapore in 2020 and dissolved his Japanese operations in 2021. He also set up a program that aims to assist Japanese crypto firms to migrate to Singapore.

Ryodan Systems AG CEO Leona Hioki said he previously thought that Japan might encourage a homegrown crypto industry. “My expectations seem wrong,” the CEO said and left for Switzerland this year.

Crypto investors are at a disadvantage compared to their stock-investing counterparts when it comes to taxation. Since they fall under miscellaneous income, crypto gain tax rates can go as high as 55 percent depending on individual income while stock gains are only taxed 20 percent for individuals.

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