New Crypto Regulation in Japan by Local Tax Authorities

This article includes the latest updates regarding the crypto regulation in Japan. Here we talk about the amendment of two laws concerning cryptocurrencies and the request for new regulation by the Tax Authorities.

At the end of May, the Japanese House of Representatives amended two laws that concern cryptocurrencies: the Payment Services Act and the Financial Instruments and Exchange Act.

The Payment Services Act (PSA) introduced the following changes:

1. “Virtual currency” becomes “crypto assets”: the reason of the change is that “crypto assets” is used more frequently at international meetings, while “Virtual currency” could lead the population to think that cryptocurrencies are comparable to fiat currencies;
2. Higher restrictions on custodian services: they will now have to maintain a level of accounting related to their risks equals to the one for exchanges. For this reason, custodians will need to be registered with the Financial Services Agency (FSA) even if they don’t provide services like crypto exchange or trading;
3. Change in the way exchanges store crypto: from April 2020 onward, crypto exchanges operating in Japan will have to separate the management of the users’ money from their own cash flows. For example, by using a third-party trust company;
4. Anonymous coins: even if the law does not directly regulate anonymous cryptocurrencies or privacy coins, FSA will deal with those crypto assets, that they called “problematic “as their transaction records are not traceable.

The Financial Instruments and Exchange Act (FIEA) brings the following changes:

1. ICOs and STOs regulation: the revision of the FIEA documentation introduces the concept of electronically recorded transferable rights (ERTRs) and it establishes that initial coin offerings (ICOs) and security token offerings (STOs) are regulated under the FIEA;
2. Crypto asset derivatives transactions: from April 2020 onward, also crypto asset derivatives transactions will be regulated under the FIEA. The law does not specify any margin rates, but they could be restricted according to the guideline of the Japan Virtual Currency Exchange Association (JVCEA);
3. Prohibitions: the FIEA introduces the prohibition for anyone to start activities like dissemination of rumors or use of fraudulent means finalized to the sale or the purchase of cryptocurrencies.

In addition to these legislative changes, recently, the Japanese national daily paper Asahi Shimbun reported the results of an investigation of the Japanese Tax Authorities regarding crypto gains over a period of several years. Specifically, 30 companies and 50 individuals are being investigated for not declaring about 10 billion yen ($93 million) made from cryptocurrency trading.
Authorities believe that holders of about 7 billion yen have hidden their own crypto transactions and for this reason they are considering the possibility of criminal charges for tax evasion against them.

Following this, the Tokyo Regional Taxation Bureau has asked to several cryptocurrency exchanges to provide lists of their customers’ business transactions. Moreover, a new system, which will be active from January onward, will allow authorities to ask private-sector exchange to provide names of clients who trade cryptocurrency on foreign exchanges or sell their holdings for other virtual currencies for higher levels of anonymity.

It is a particularly delicate period for crypto regulation in Japan. These situations are likely to be discussed also at the G20 summit in Osaka on 28th and 29th June.

Lisk in Japan is mainly represented by the EliteCenter Tokyo, that organizes meetups with local entrepreneurs and representatives of the crypto community. The next event will be held on 21st June, with the introduction of the SDK and speeches from guests. You can find the event page here.

 

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