The Japanese government has long been preparing amendments to the Banking Act to reflect economic changes brought about by advancements in communications technology. Last week, Japan’s Financial Services Agency (FSA) announced that the bill would take full effect from Saturday, April 1. The amendments include ordinances related to digital currencies and digital currency exchanges.
The Japanese government has been drafting amendments to the Banking Act for a long time to reflect economic changes resulting from advancements in communications technology. Last week, Japan’s Financial Services Agency (FSA) announced that the bill will take full effect on Saturday, April 1. The amendments include an ordinance on digital currencies and digital currency exchanges.
According to Bitflyer, the world’s largest Bitcoin exchange by trading volume, “Article 3 of the bill now stipulates that virtual currencies[VC]and is temporarily being called the ‘Virtual Currency Act.’” The bill defines digital currencies, including Bitcoin, for the first time and recognizes them as a means of payment.
“The new law defines Bitcoin and other cryptocurrencies as a means of payment rather than a legally recognized currency. Bitcoin will continue to be treated as an asset unless there is a future revision or guidance in Japanese tax law.”
— – BitFlyer
According to the global law firm, the revised Payment Services Act, which is part of the DLA Piper Banking Act, defines digital currencies as “property of value” that can be used to make payments to unspecified persons and that can be bought and sold from unspecified persons.
The law firm explains that the law clearly distinguishes digital currencies from traditional and electronic currencies. According to Japan, ‘digital currency’ is different from ‘electronic money’. This is because electronic money has no issuer and can be used by any recipient, whereas electronic money has a specific issuer and can only be used by the issuer or authorized persons.
Bitcoin trading profits may be considered “income from business activities or other income.” Because Bitcoin has asset-like characteristics, capital gains tax is imposed in Japan. However, starting July 1, the buying and selling of Bitcoin and other digital currencies will no longer be subject to Japan’s 8% consumption tax.
These new regulations are the result of a separate effort by the Japanese government to reform its tax system. The fiscal year 2017 tax reform proposals are as follows: The Japanese Cabinet announced on March 27 that a bill exempting digital currency transfers from consumption tax would take effect on July 1.
“We are seeing significant progress in the taxation of virtual currencies in Japan,” DLA Piper explained, adding, “We expect to see new accounting standards in the near future detailing how digital currencies should be treated for tax purposes.”
“Although VC-to-cash exchanges are exempt from excise tax, exchanges of cryptocurrency for assets or services (i.e. when someone pays cryptocurrency to a seller of an asset or service) are still subject to excise tax in the same way as transactions paid in traditional currency.”
— – DLA Piper Law Firm
Buying and selling Bitcoin is exempt from consumption tax, but opening a Bitcoin exchange account is becoming increasingly difficult. The April 1 bill also amends the Prevention of Transfer of Proceeds of Crime Act, mandating exchanges to implement more stringent know-your-customer (KYC) procedures. Following the announcement that the bill would go into effect on April 1, major Bitcoin exchanges are rushing to inform their customers of the new KYC procedures.
Now the customer must answer the following list: Question: A Japanese Bitcoin exchange asks for personal information such as a customer’s occupation and transaction purpose, which was not previously asked. You will also need to upload your ID and wait for the exchange to process it, which can take several days. Additionally, the exchange sends a postcard to the registered address of new transfer customers, containing a verification code that must be entered online before using the account.
Meanwhile, digital currency exchanges themselves must also comply with a number of additional regulations. Other RequirementsThe most stringent requirement is that you must have liquid assets of at least 100 million yen (equivalent to approximately US$900 million). Additionally, the exchange must demonstrate that it has a sufficient IT system management program, including measures to prevent the leak, loss and damage of funds and personal information.
Additionally, each exchange must disclose to users detailed information such as business name and address, registration number, transaction details, and all fees and costs. In addition, an internal system must be established for employee training and guidance for outsourcing companies. In addition, users’ cash and cryptocurrency must be managed separately from their own funds, and the status of separate management must be regularly audited by a certified public accountant or audit firm at least once a year.
DLA Piper said the Payment Services Act also introduced provisions “for the registration of all virtual currency exchange businesses” and described these provisions as “consistent”. The declaration was made at the 41st G7 Summit held in Ellmau in 2015.”
Currently, most Bitcoin-to-Cash exchange services available in Japan are operated by Japanese companies. However, the law amendment could be an opportunity for foreign VC-Cash exchange service providers to expand their business into the Japanese market as the new registration system is also open to foreign companies.
Japan, the Land of the Rising Sun, has a unique history with Bitcoin, made even more complex by the 2013 rise and fall of Tokyo’s Mt. Gox, then the world’s largest Bitcoin exchange. Although much of Japan’s population is very technologically advanced and already accustomed to sending and receiving tokens and coupons via smartphones, most Japanese had never heard of Bitcoin until the Mt. Gox incident. Many people were introduced to Bitcoin after seeing Mark Karpeles’ face on TV during a court trial.
“The Japanese had a negative image of Bitcoin because they thought Mt. Gox was Bitcoin,” explained Kagayaki Kawabata, head of business development at Coincheck. “But things have changed over the past few years. Today, more and more Japanese people think of Bitcoin as a superior technology.”
“The Japanese Bitcoin market is changing rapidly and is now moving in a positive direction.” Kawabata explains on BraveNewCoin. Exchanges offering yen trading currently account for more than half of global Bitcoin trading volume.
Japanese conglomerate GMO has already begun to gain the upper hand in the new atmosphere. Bitflyer, the largest Internet service provider and online foreign exchange market provider, has invested in Bitflyer, the largest Bitcoin exchange and is developing an upcoming Bitcoin exchange and wallet service. The company expects the Japanese digital currency market to grow to 1 trillion yen (USD 870 million) within a few years, citing recent improvements in Japan’s regulatory environment as the reason for the high valuation and investment.
