Bitcoin will soon be legally recognized as a method of payment in Japan. The bill with provisions for cryptocurrencies has recently passed through the period of public consultation and will enter into force in April.
Bitcoin.com examines what the bill means and how it could affect Bitcoin with Special Counsel at Anderson Mori & Tomotsune, Ken Kawai, who has held numerous speaking engagements on the legal issues of virtual currency regulations in Japan.
Countdown: The Long Awaited Bill
Since Bitcoin’s inception, its legal position in Japan has not been clear. The first bill containing provisions for virtual currencies including Bitcoin was submitted to the Diet last March. It amends the existing Payment Services Act and the Act on Preventing of Transfer of Criminal Proceeds.
“The revision of the Payment Services Act, which sets out the basic framework of virtual currency regulation, was promulgated last June”, Kawai told Bitcoin.com. The drafts of detailed regulations and guidelines were published in December and the period for public consultation on the bill ended on January 27, he continued, adding that:
The new regulations will enter into force in April 2017.
New Method of Payment but Not Currency
This bill defines virtual currencies including bitcoin and imposes certain regulations on virtual currency exchange services with the aim to prevent money laundering and terrorist financing as well as to protect users.
While the bill recognizes them as a new method of payment in Japan, virtual currencies are not classified as “currencies” however. Kawai confirmed:
“Virtual currency” is distinguished clearly from “currency” in the regulations.
Even though Bitcoin is not considered a currency, being recognized by the government as a payment method will “likely have a positive effect on people’s mind and facilitate usage of VC’s [virtual currencies]”, he believes.
Bitcoin usage has already been growing considerably in Japan. Japanese exchange Coincheck revealed significant growth in its user base, rising from 14,000 users last April to 76,400 in January. In addition, the exchange reported gigantic growth in the number of bitcoin-accepting merchants using its service. Also, Japanese giant GMO Internet group has recently announced that it would be developing a bitcoin exchange and wallet service.
Meanwhile, Japan now has the second-largest bitcoin trading volume globally, according to Coinhills.
Bitcoin’s Other Legal Considerations in Japan
While usage as a payment method should not be affected whether bitcoin is legally considered a ‘currency’ or not, Kawai explained that, from a legal standpoint, there are some considerable differences.
“For instance, if they are defined as “currencies”, lending of VCs must comply with Money Lending Control Act (which requires lenders to register as “Moneylenders”) and VCs’ derivatives must comply with the Financial Instrument Exchange Act”, he described.
Some other countries have classified virtual currency as an asset or property for tax purposes such as the U.S. Recently, Israel has issued a draft which considers Bitcoin an asset, therefore imposing Value Added Tax (VAT) as well as capital gains tax on bitcoin transactions.
However, for Japan, this bill does not define virtual currency as “property”. Instead, virtual currencies are defined as ‘proprietary value’, Kawai contrasted, adding that “a precedent of Tokyo District Court denies the concept of having ‘property rights’ of Bitcoin”. Furthermore, “it is not uncertain what is the legal nature of proprietary value in Japanese civil laws”, he clarified, adding that “I do not expect that the government is leaning towards proactively considering it as “property”.
Images courtesy of Shutterstock and Anderson Mori & Tomotsune