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Today, I’d like to introduce the taxation of Cryptocurrencies for both corporations and individuals.
With Mr. Musk’s comments in May 2021 and the tightening of regulations in China, I can’t deny that the bubble market has collapsed so far, but I only hold on to the belief that it will revive in the future…
目次-Contents-
Tax Rate on Cryptocurrencies
Tax Rate for Entrepreneurs
The progressive tax rate is applied to Entrepreneurs.
In other words, the tax rate is determined according to the amount of income combined with other income, such as salary and real estate.
The higher the total income, the higher the tax rate.
The total tax rate for income tax and inhabitant tax is 15% to 55%.
We often hear, “Cryptocurrencies are taxed at 55%! However, unless you are making a lot of money, the tax is not that high.
Tax Rate for Companies
It is the same as for individuals in that it is taxed together with other income.
However, for corporations, the tax rate does not swing that much, ranging from 25% to 30%.
Basically, the tax rate for corporations is uniform, but the total tax rate varies because the Corporate tax rate（法人税） increases for income over 8 million yen and the business tax rate（事業税） increases for 4 million yen and 8 million yen, respectively.
Which tax rate is more favorable？
It is a case by case basis. If you make more than about 4 million in Cryptocurrency profits, your personal and corporate tax rates will reverse, so if you are confident that you can make money, own Cryptocurrency as a company asset.
If I lose money on Cyptocurrency, can I offset it against other gains?
Profit & Loss Offset for Entrepreneurs
No, you can’t.
No matter how much money you lose in Cryptocurrency, you will never be able to get back the taxes you paid on your other income.
Profit & Loss Offset for Companies
If you have Cryptocurrency in your corporation and you have a loss on it, you can offset it against the profits from your other businesses.
Which is favorable when you lose on it?
Companies are.
You can offset that loss against the profits from your other businesses.
Get taxed even if I don’t sell the Cryptocurrency!?
Entrepreneurs are taxed only on sale or exchange
Entrepreneurs are not taxed on their Cryptocurrency unless they make a profit by selling it or exchanging it for other Cryptocurrencies or goods.
In other words, as long as you buy Cryptocurrency and keep it on hand, you will not be taxed, even if the price of bitcoin skyrockets.
Since you haven’t made any profit yet, it’s natural, isn’t it?
Mark-to-Market taxation for companies
On the other hand, the tricky part is the corporation.
What’s more, even if a corporation just buys Cryptocurrency and keeps it on hand all the time, it will be taxed if its market value goes up and it makes a profit.
The end of March 2021 was maybe a historic bubble for Cryptocurrencies.
It was probably close to 7 million yen per bitcoin.
Some companies may have made huge profits from this.
However, they have to pay taxes of 25-30% of the profit. Even if there is no cash on hand.
Corporations are required to pay taxes within two months of the end of the fiscal year.
If a company that made money from Cryptocurrencies does not have enough cash on hand, it may have to sell the them in order to pay the taxes.
However, at the end of May, the deadline for paying taxes whose fiscal year ends on March 31, 1 bitcoin equals about 4 million yen, which is a big drop from the end of March.
There may be some sad stories of companies who lost their bitcoins to pay this tax.
When Cryptocurrencies for long-term holdings surge, the advantage is…
That is an Entrepreneur who will not be taxed unless they sell or exchange their property, no matter how much the market rises.
Corporations are taxed on the assumption that they have sold their shares at market value on the closing date, the so-called unrealized gains tax.
This is a strict measure that is not seen even in stocks or FX.
To conclude;
From the standpoint of tax rates, corporations with lower limits have the upper hand.
Corporations also have the advantage of being able to offset losses from Cryptocurrencies with profits from other businesses to reduce taxes.
However, corporations are subject to an unrealized gains tax, which means that even if they have not sold their shares, they are considered to have sold them at the end of the fiscal year and made a profit.
In the current situation where the market is going up and down drastically, I think the unrealized profit taxation is a big threat.
Having any concerns like these with your accountant?
Your tax accountant…
- changes every year
- suggests no tax-saving measures
- doesn’t give you financial statements in a timely manner
- doesn’t explain the contents of the statements
- is reluctant to use the cloud software
- rarely shows up to your office
- is always late to answer your questions
- is elderly and you’re worried about the near future
Lack of communication with tax accountants can cause incorrect accounting processing due to the mess of the contents of the bookkeeping.
As a result, it increases the risk of additional taxation of up to 40% through a tax audit which is conducted once every 3 to 5 years.
To prevent paying additional taxes, it is important to share accounting processing and the business environment with tax accountants on a daily basis and to take measures to address additional taxation risks at an early stage.
We, Masa Tax Consulting, not only consult on accounting contents but also provide tax audit preparation measures and proposals for tax-saving measures that are optimal for customers as the most casual/friendly tax accountant in Japan.
We now offer a free initial consultation and a first-month-free policy.
We do not force you to make any contract, so please feel free to contact us.
～The representative tax accountant will always respond responsibly.～
