Japan's tax regime is unfriendly to businesses in the digital assets space, such as tokenization, and needs to change, a businessman who now lives in the Netherlands has told this news service.

Asia contains a patchwork of sharply contrasting approaches towards cryptocurrencies and digital assets. And it appears that Japanese tax rules don’t make the country a friendly place for entrepreneurs in the space, at least according to one games developer.

Shinnosuke “Shin” Murata, founder of blockchain games developer Murasaki, has forsaken his home country for the Netherlands, frustrated by tax rules that he says penalise firms such as his. 

Japanese regulations prevent listed companies from selling tokens that aren’t listed on certified exchanges. Japan levies a 30 per cent corporation tax that is taxed on the nominal value of the token issued, although it might be reviewed soon as sales of goods are still subject to 30 per cent taxation as soon as the issuer sells tokens.

“In practice, what this means is that startups cannot issue a fungible token, due to the taxation on unrealised assets,” Murata told this news service in a call. 

Another problem is that auditors are unwilling to give an opinion as there is no firm accounting protocol for crypto.

Murasaki, which moved to the Netherlands in July last year, works with about 30 people in various locations. Murasaki was founded in February 2022. The Incubate Fund is the firm’s lead investor and has been investing in crypto business for more than 10 years.

The stakes are large. According to a report in March by EY, the accountancy and professional services firm, investment in digital assets, such as cryptocurrencies, utility tokens and security tokens has grown rapidly. The crypto economy has achieved a market cap of more than $3 trillion in less than 13 years. Tokenization – a term relating to how people obtain ownership stakes in assets such as art and investment and which is driven by blockchain tech – could be as much as $16.1 trillion by the end of the decade, one report has said.

(This news service took a broad view of digital assets and related matters here.)

Rival Asian jurisdictions such as Singapore are courting the digital assets space, although they are cautious about trading in cryptocurrencies such as bitcoin. Sharp falls in crypto values this year have cooled euphoria. Year to date, bitcoin is down from £35,275 ($40,374) to £17,454 yesterday, falling by more than half. 

On 10 December 2021, Japan’s ruling coalition approved a tax plan for the 2022 fiscal year that continues to treat token listings as taxable. Once tokens are listed on an active market, issuers are liable to pay tax even if they don’t sell (source: CoinDesk). A project that lists some of its tokens on exchanges and keeps the rest in its treasury also has to pay taxes on what it holds if its market value goes up.

Against the upstarts
Murata said some of the pressure to tax such business in Japan comes from large, incumbent corporations that see upstart crypto businesses as a competitive challenge.

He says other Japan-based entrepreneurs and firms are relocating to other countries because of the situation.

Reportedly, the Astar Network, a multi-chain decentralised application (dapp) hub founded by Sota Watanabe, has left the country. Watanabe told Bloomberg on 8 August that he is in Singapore. He was quoted as saying there was no future for the sector in Japan without corporate tax changes.

Murata said the market is in early stages. “It is like internet in 1995 right now. Tokenization is a vehicle of flexible value transition across the nations. Simply, tokens are cheaper and faster than shares and securities,” he said.

Murata is interested in how the wealth management sector has got involved in the digital assets space.

“We provide IP [intellectual property] values of the ownership of NFTs through manga and/or game series. Some people already hedge their assets by NFTs,” he said.

The move to the Netherlands has been a plus for Murasaka although, as Murata told this news service, he misses the food of home, and the Japanese work ethic.