🚧 Under Construction 🚧 Please suggest any other points as comments
Currently, crypto assets and tokens with some liquidity create a corporate tax liability on unrealized gains at the end of the year. This causes DAO governance token holders, including investors and founders, to have a very high potential tax risk on tokens that can not be sold for technical, legal or governance reasons. Also, many DAOs have minimal liquidity and selling a large number of tokens could crash the price.
This point was made in the NFT Whitepaper from the LDP Digital HQ, and there were signs that a reinterpretation of the tax code might eliminate this liability. However, it appears that only issuers may be exempt, and investors and other holders are still liable.
The taxation for the Initial Token Offerings must be clarified. There is no clear guidance for categorizing tokens.
Also, newly minted tokens should not be considered immediate sales of goods for issuers.
The Japan Crypto-Asset Business Association (JCBA) and the Japan Crypto-Asset Exchange Association (JVCEA) are calling for this rate to be reduced to 20%. Not sure how likely this is, considering miscellaneous income tax has other prominent communities such as gig workers and stock option holders stuck in the miscellaneous income tax ghetto, but hopefully, this changes.
Under Japanese law, entities, including funds, which have a local agent that is concluding or negotiating contracts in Japan, can cause the company or fund to be exposed to Japanese tax. This includes funds and their LPs. One Japanese politician said that this law initially targeted companies like Amazon with local offices, which siphoned revenues and earnings offshore to the parent companies, but this law has been being applied to funds.
Functionally, this can cause LPs in an offshore fund to be exposed to Japanese taxes if the fund has a partner in Japan. This goes against the government’s desire to attract world-class funds to Japan.
PwC has an article on this in their newsletter from 2008.
Suppose someone buys something with cryptocurrency, and the value of the cryptocurrency is higher than the purchase price of the cryptocurrency. In that case, the transaction is taxed as if the cryptocurrency was sold and the purchase was made with yen. Currently, for individuals, there would be a 55% or so tax on the gain in the value of the cryptocurrency.
Withholding tax, income tax and consumption tax when an overseas business conducts an NFT transaction in Japan is unclear. This should be clarified.
The lack of foreign tax credit consideration in the Value Added Tax is an issue. This should be coordinated globally.