Japan to Implement Crypto Regulations in 2024
Japan, a country deeply rooted in traditions, has also embraced technological advancements, particularly in the field of cryptocurrency. In fact, Japan has emerged as a global hub for crypto activities, playing a significant role in the development of cryptography and being the first to recognize the potential of a decentralized digital world by mining Bitcoin. However, it’s worth noting that cryptocurrency is not considered legal tender in Japan, as it is not issued by the central bank.
In terms of regulations, the Financial Services Agency (FSA) is responsible for overseeing cryptocurrency in Japan, with the support of the Japan Virtual Currency Exchange Association (JVCEA) and the Japan Security Token Offering Association (JSTOA). The Payment Services Act (PSA), introduced in April 2017, established Bitcoin as legitimate property and marked the beginning of an active regulatory timeline.
Cryptocurrencies are regarded as legal property under the PSA, and significant amendments were made in May 2020. The term “virtual currency” was replaced with “crypto-asset” in the amendments to the PSA and the Financial Instruments Exchange Act (FIEA). Crypto exchanges operating in Japan are required to register with the FSA and adhere to traditional anti-money laundering (AML) and counter-terrorism financing (CFT) responsibilities to ensure secure operations.
The National Tax Agency of Japan has classified earnings from cryptocurrencies as “miscellaneous income” since 2017, ensuring appropriate taxation for crypto players. AML standards are enforced by the Act of Prevention of Transfer of Criminal Proceeds, overseen by Japan’s financial intelligence unit, JAFIC. Virtual asset service providers must strictly adhere to know-your-customer (KYC) requirements, and only companies with highly qualified Financial Bureau personnel can operate as crypto exchanges in Japan.
Japan also allows international crypto exchanges to operate if they have registered themselves according to the laws of their home country. In terms of regulations, the Financial Action Task Force (FATF) made it mandatory in October 2018 for crypto asset exchangers and custodians to adopt anti-money laundering and counter-terrorism financing measures.
In 2020, amendments were made to the PSA, including the reclassification of most crypto entities as “crypto assets” instead of virtual currencies. Additionally, restrictions were placed on advertising “speculative investments” in the crypto world. The regulations also required in-advance alerts for applicants seeking to become crypto asset exchangers and introduced rules for online advertising of such exchangers.
The FSA is currently working on guidelines for the application of the “crypto travel rule,” known as APTCP, to Virtual Asset Providers (VASPs). In April 2022, the Japan Virtual Currency Exchange Association (JVCEA) implemented the Travel Rule in the VASPs Association’s Self-regulation Rules, and in December 2022, the Cabinet Secretariat amended APTCP to enforce the crypto Travel Rule. The FSA launched a consultation on draft Cabinet Orders in February 2023 to partially revise the APTCP’s enforcement order.
Japan also regulated stablecoins in June 2023 to address concerns related to these types of cryptocurrencies. However, obtaining a license and gaining approval from Japanese regulators for stablecoin operations can take up to a year due to the lengthy requirements.
Taxation on cryptocurrency in Japan is based on the view that crypto is property and is subject to taxation. Crypto earnings over 200,000 JPY are considered miscellaneous income and can be taxed at rates of up to 55%. This includes profits from trading, mining, and DeFi lending for permanent residents. In comparison, tax on stock profits is 20%.
For individuals who bought or sold crypto and made more than 200,000 JPY in the last financial year, they are required to declare their crypto totals on their Income Tax returns. The tax paid on crypto gains depends on the individual’s Personal Income Tax bracket, with a maximum tax rate of 55% under income tax.
Overall, the government of Japan has shown a friendly attitude towards the crypto world, as seen in their rewarding of NFTs for good work by local authorities. With progressive regulations and some relaxations, Japan is considered an ideal country for engaging in cryptocurrency activities.