Japan: Laws Related to Token Sales, Blockchain, and Digital Proof
Central resources include the Japan Blockchain Association, and this document by the FSA.
In April 2017, new regulations passed by the Financial Services Agency of Japan (the FSA) in December 2016 came into force. The most detailed English-language description of these recent regulations and their legal implications can be found in a financial services letter by Anderson Mо̄ri and Tomotsune (AMT-law) here, and a journalized summary of critical changes can be found here. Key requirements include:
- Any entity intending to provide a digital currency exchange service must be registered with the Prime Minister of Japan (this registration ratifies entities as “Virtual Currency Exchange Service Provider(s)”
- The minimum capital requirements are 10 million yen (approx. 88,000 US dollars as of 12/23/17).
- Various other requirements pertaining to theft/loss defense systems, internal governance requirements, and audit regulations are outlined in the AMT bulletin linked above.
The required documents to be submitted with the registration application for VCESP status can be found on page 5 of this document. A full list in Japanese of the requirements to obtain VCESP status, along with the associated documents, can be found on the FSA website here. Registered firms must declare a list of trading currencies to be approved during registration, and are not able to independently alter or modify this list without going through the FSA.
It should be noted that the requirements for obtaining VCESP status are extremely stringent, and the number of firms that have successfully registered is exceedingly small. According to the latest database published by the FSA, there are only 15 firms legally registered to trade VC in the whole of Japan, and the range of currencies traded is narrow. See below for more details.
ICO Token Sales
The Japan Blockchain Association has published guidelines for ICOs to Japanese residents, which can be found below.
Japan has no specific ICO regulations, but the Payment Services Act (PSA) also called the Virtual Currency Act (VCA) makes token sales a matter requiring extensive registration procedures at the risk of severe penalties. In particular:
- Only registered Virtual Currency Exchange Business Operators are authorized to handle ICO tokens deemed as virtual currency (this requires notifying the FSA).
- If ICO tokens are deemed prepaid payment instruments, registration with/notification to the FSA may still be required.
- If the ICO is deemed to be a collective investment scheme/fund, then fund regulations pursuant to the FIEA (FIEA Fund Regulations) will apply.
- If regulations under these acts do not apply, the ICO tokens will be regulated under the Specified Commercial Transaction Act.
In all cases, it is strongly advised for firms intending to engage in token selling in Japan either through a subsidiary or an independent private company notify the Financial Services Agency of Japan.
According to Japan’s Sankei, the FSA is considering regulating cryptocurrency exchanges under the Financial Instruments and Exchange Act (FIEA). Most ICO coins are regulated under the so-called “Virtual Currency Act”. There are two type of VC in Japan, Type I Virtual Currency and Type II Virtual Currency. According to the definition, NEO should be classified into the category ‘’Type VC’’
Facts about bitcoin in Japan
- It is not a currency and recognizes Bitcoin and other digital currencies as legal tender under the Payment Services Act
- Trading of Bitcoins does NOT fall into the “trading of securities ——not subject to securities regulations.
Handling of Bitcoins does not require licenses under FIEA3. FIEA is applicable only to the securities and any other rights in which dividends are paid or revenues are shared
- Japanese legal system does not prohibit persons from using Bitcoins for commerce”
- Handling of Bitcoin does not fall into the banking business and handling bitcoin not require banking license
5.Bitcoin is subject to tax under relevant tax codes
-You will be taxed under Income Tax Code of Japan if an individual gains earnings in the form of virtual currency
-You will be taxed under Corporate Tax Code of Japan if a corporation gains earnings in the form of virtual currency
-Purchasing virtual currency is subject to consumption tax under the Consumption Tax Code Revised