Japan - Crypto penetration

intro

Japan and the United States are the first countries in the world to make crypto operations legal. That’s why the biggest crypto exchange of the past, Mt.Gox, was operating here, and famous early crypto enthusiast Roger Ver moved from the US to Japan.

Security level

According to our rating, Japan may be qualified as a safe place. The country has 77.1 points (from 100) for safety level in Numbeo crime rating (1). Homicide level (2) is 0,3 per 100,000 a year. Level of firearm-related death (3) 0,02 per 100,000 a year.

Crypto Payments

According to the Payment Service Act, “virtual currency” may be used in payments (4), and it’s legal.

Quote

“(5)The term "Virtual Currency" as used in this Act means any of the following: (i)property value (limited to that which is recorded on an electronic device or any other object by electronic means, and excluding the Japanese currency, foreign currencies, and Currency-Denominated Assets; the same applies in the following item) which can be used in relation to unspecified persons for the purpose of paying consideration for the purchase or leasing of goods or the receipt of provision of services and can also be purchased from and sold to unspecified persons acting as counterparties, and which can be transferred by means of an electronic data processing system; and (ii)property value which can be mutually exchanged with what is set forth in the preceding item with unspecified persons acting as counterparties, and which can be transferred by means of an electronic data processing system.”

Sources (5), (6)

Crypto Salaries

It’s still not legal (7) to pay a salary in crypto in Japan. New rules implemented in April 2023 allowed digital salary payments but not crypto. So, it’s still unregulated.

Details

Japan has revised its rules on digital salaries, but crypto has been excluded. The country will allow salaries to be sent to money transfer providers, but this cannot be done in crypto assets.

Legal

The Financial Services Agency (FSA) regulates (7) VASPs in Japan. However, the FSA collaborates with two self-regulation entities for the cryptocurrency industry:

The Japan Virtual Currency Exchange Association (JVCEA) - creates rules and policies applicable to cryptocurrency exchanges.

The Japan Security Token Offering Association (JSTOA) - concentrates on token offerings and other crowdfunding events.

Japanese regulation requires an entity to register as a cryptoasset exchange provider (“CAESP”). The list of registered CAESPs includes (8) 31 companies. Security tokens are regulated under FIEA as securities and require a Financial Instrument Business Operator - FIBO Type 1 license.

Since new amendments to the FSA were implemented (9) in June 2022, stablecoins are regulated under the FSA as Electronic Payment Instrument (EPI), and operators need to register as Electronic Payment Instrument transaction businesses. You can find more details about the FSA position according to current regulations and future proposals here (10). The regulation review for crypto assets from FSA is in the image below.

Article 2 of PSA defines "CAESP" as engagement in any of the following as a business:

According to Gaurav Arora's assumption (11)

Main Crypto Laws in Japan

👉Payment Services Act (13)

👉Financial Instruments and Exchange Act (14)

👉Act on Prevention of Transfer of Criminal Proceeds (15)

Taxation

Tax name	Index
PIT tax Min	5
PIT tax Max	55
Min Individual CGT (for crypto)	15
Max Individual CGT tax (for crypto)	55
Corporate tax (CIT)	30
Wealth tax Min	0
Wealth tax Max	0
TDS tax
Mining tax	55

CGT

No crypto CGT tax for individuals. All individual crypto profits are mostly qualified as miscellaneous income with a maximum PIT rate of 55%.

PIT

According to the Tokentax review (16), the maximum PIT rate for crypto income in Japan is 55%. This tax rate is applied also for any crypto capital gains. In some cases, earnings under 200k JPY are tax-free. 45% - CGT and 10% local tax for inhabitants. Moreover, there is no exemption for long-term holders.

The Japanese National Tax Association (NTA) views crypto as property and taxes it as miscellaneous income under the Payment Services Act (PSA) and the Financial Instruments and Exchange Act (FIEA). Japanese taxpayers are not taxed when they purchase, hold, or move crypto between wallets. However, if you’ve purchased or sold crypto and made more than 200k JPY, you must declare your crypto gains on your income tax return.

This includes permanent residents’ profits from cryptocurrency trading, Bitcoin mining, and DeFi lending. Considering that Japan taxes stock profits at a flat 20%, its crypto tax rates are very high.

You can find more details about the general taxation procedure in the local tax authority guide (17).

CIT

30% corporate tax rate for crypto gains. In 2023, unrealized paper gains were excluded (18) from this tax.

Under the new rules, Japanese firms issuing tokens are exempt from paying a set 30% corporate tax rate on their holdings.

Links

1)Number crime rating. Statistics

2)Homicide level. The list of countries by UNODC homicide rate.

3) Firearm-related death. Historical list of countries by firearm-related death rate.

4)Payment Services Act

5 and 5¹)Japan Will Allow Digital Salaries Starting in 2023, but Crypto Is Excluded. Article.

6 And 6¹)Crypto Travel Rule by the Financial Services Agency (FSA) in Japan. Travel Rule required from June 1, 2023.

7)List of Registered Crypto-asset Exchange Service Providers in Japan. PDF-file