General legal and regulatory frameworkLegal framework
What legal framework governs cryptoassets? Is there specific legislation governing cryptoassets and businesses transacting with cryptoassets?
Cryptoassets are regulated pursuant to an amendment to the Payment Services Act (Act 59/2009, as amended) (PSA), which was enacted on 25 May 2016 and came into effect on 1 April 2017. The PSA defines the scope of cryptoassets subject to the PSA, regulates transactions in cryptoassets and licenses exchanges dealing in cryptoassets, known as ‘cryptoasset exchange service providers’.
Contemporaneously with the amendment of the PSA, the Act on Prevention of the Transfer of Criminal Proceeds (Act 22/2007) (the ‘AML Act’) was amended to bring cryptoasset exchanges within the scope of the entities obligated to conduct know-your-customer checks and perform other anti-money laundering (AML) controls.
A further bill to amend both the PSA and the Financial Instruments and Exchange Act (Act 25/1948) (FIEA) was passed by the Japanese Diet on 31 May 2019 and will come into effect within one year of that date.
The PSA amendments primarily seek to enhance the regulation of cryptoasset exchanges and create new requirements for the regulation of cryptoasset custody services. It also changes the defined term applicable to cryptoassets from ‘virtual currency’ to ‘cryptoasset’. The FIEA amendments seek to bring digital assets with securities-like features within the purview of FIEA regulation.
Below are some key definitions and concepts.
CryptoassetsArticle 2-5 of the PSA sets out the following definitions of ‘cryptoasset’:
- Type 1 cryptoassets – these have a proprietary value that:
- is available as a means to pay unspecified persons in exchange for the purchase or loan of goods or the receipt of services;
- can be exchanged with fiat currency against unspecified persons (limited to that recorded on an electronic device or other materials in an electronic manner and excluding Japanese or foreign currencies or currency denominated assets); and
- is transferrable through a computer network; or
- Type 2 cryptoassets – these have a proprietary value that is mutually exchangeable with a Type 1 cryptoasset against unspecified persons and that is transferrable through a computer network.
Thus, a cryptocurrency that can be used to pay unspecified persons and that is not denominated in fiat currency will typically be a cryptoasset under the PSA.
Currency denominated assets
Cryptoassets are to be distinguished from ‘currency denominated assets’, which are defined under Article 2-6 of the PSA as:
- assets denominated in Japanese or foreign currency; or
- assets for which the performance of obligations, refunds or any other equivalent rights are to be performed in Japanese or foreign currency.
If the issuer of an instrument is under an obligation to reimburse the user in fiat currency pursuant to a contract between the user and the issuer, then, in principle, the instrument will be a currency-denominated asset rather than a cryptoasset. It should be noted that, depending on the precise features of the instrument, it may instead be a prepaid payment instrument under the PSA.
Cryptoasset exchange services‘Cryptoasset exchange services’ are defined under Article 2-7 of the PSA as any of the following activities conducted for the purpose of business:
- the sale or purchase of cryptoassets or the exchange of cryptoassets for other cryptoassets;
- intermediation, brokerage or delegation of the acts described in the first bullet point; or
- management of users’ money or cryptoassets in conjunction with the first or second bullet points
How would you describe the government’s general approach to the regulation of cryptoassets in your jurisdiction?
The government of Japan has been proactive in establishing a regulatory framework for cryptoassets with the primary aim of protecting cryptoasset investors in light of the enormous popularity of cryptoasset investment among Japanese investors and the failure of Tokyo-based bitcoin exchange Mt Gox in 2014. As a result, Japan was the first country to create a national regulatory framework for cryptoasset transactions, including the licensing of cryptoasset exchanges and the implementation of AML controls around cryptocurrencies.
More recently, in January 2018 Coincheck, Inc, a major Japanese cryptoassets exchange, announced that it had been subject to a major hacking incident in which cryptoassets equivalent to more than $500 million were lost. It has also become clear that ongoing speculation in cryptoassets is a potential risk to the financial system. As a result, in a report published on 21 December 2018 the Financial Services Agency of Japan (FSA) proposed the PSA amendments and the FIEA amendments in order to augment the regulatory framework for cryptoassets.Regulatory authorities
Which government authorities regulate cryptoassets and businesses transacting with cryptoassets?
The FSA has broad jurisdiction over the regulation of cryptoassets trading and cryptoasset exchanges, and the enforcement of the PSA. Cryptoasset exchanges are subject to a registration process that requires the approval of the FSA.
Other government authorities may also have authority depending on the precise activity in question. For example, an initiative to allow the use of cryptoassets in the inter-bank settlement system may require the approval of the Bank of Japan.Regulatory penalties
What penalties can regulators impose for violations relating to cryptoassets?
The penalties for violation of the PSA are a fine of up to Y300 million and a prison term of up to three years, depending on the precise violation.
The penalties for a breach of the FIEA, which applies to offerings of security tokens, are a fine of up to Y700 million and a prison term of up to three years, depending on the precise violation.
A licensed entity may also be subject to a business improvement order or a business cessation order at the discretion of the FSA in the event of an unsatisfactory regulatory exam.Court jurisdiction
Which courts have jurisdiction over disputes involving cryptoassets?
The jurisdiction of the courts is not dependent on the type of asset subject to the proceeding. Typically, jurisdiction depends on the nature of the proceeding and the applicable penalty. The following courts may have jurisdiction in Japan over proceedings relating to cryptoassets:
- The summary courts handle:
- civil cases involving claims which do not exceed Y1.4 million;
- criminal cases relating to offences punishable by fines or lighter penalties; and
- civil conciliations.
The cases are handled by a single summary court judge.
- The district courts handle the first instance of most types of civil and criminal case. Most cases are disposed of by a single judge, unless it has been decided that hearing and judgment shall be made by a collegiate court or cases where the crimes are punishable by imprisonment with or without labour for at least one year;
- The high courts handle appeals filed against judgments rendered by the district courts, family courts or summary courts. The cases are handled by a collegiate body consisting of three judges.
- The Supreme Court is the highest and final court that handles appeals filed against judgments rendered by the high courts. It is composed of the chief justice and 14 justices, with a grand dench made up of all 15 justices and three petty benches, each made up of five justices.
Legal status of cryptocurrency
Is it legal to own or possess cryptocurrency, use cryptocurrency in commercial transactions and exchange cryptocurrency for local fiat currency in your jurisdiction?
Yes, it is legal to own, possess, use and exchange cryptocurrency for local fiat currency in Japan, subject to the requirements under the PSA or, as the case may be, the FIEA, and any other applicable regulation.Fiat currencies
What fiat currencies are commonly used in your jurisdiction?
Fiat currencies commonly used in Japan are Japanese yen, US dollars and the euro.Industry associations
What are the leading industry associations addressing legal and policy issues relating to cryptoassets?
The Japan Virtual Currency Exchange Association is the certified self-regulatory organisation for cryptoasset exchanges established under the PSA.
The Japan Securities Dealers Association is the self-regulatory organisation with oversight of financial instruments business operators under the FIEA.
Cryptoassets for investment and financingRegulatory threshold
What attributes do the regulators consider in determining whether a cryptoasset is subject to regulation under the laws in your jurisdiction?
The attributes applicable to a cryptoasset are as defined under Article 2-5 of the Payment Services Act (Act 59/2009, as amended) (PSA).Investor classification
How are investors in cryptoassets classified and treated differently?
With respect to investors in cryptoassets generally, whether by initial coin offering (ICO) or via a cryptoasset exchange, there is no particular regulation which delineates rights or protections by reference to type of investor.
For purposes of a securities token offering, the Financial Instruments and Exchange Act (Act 25/1948) (FIEA) classifies investors into the following categories:
- general investors;
- specified Investor – professional investors with experience investing in securities and who understand the conventional risks of securities investment;
- qualified institutional investors (QIIs) – enumerated categories of professional investor such as bank and insurers; and
- for the purposes of the Article 63 exemption available for a self-offering of Type 2 securities – non-QII investors equipped with the judgment to make investments and operators who have close relationships with fund operators. Eligible non-QII investors are:
- fund managing firms;
- central and local governments;
- listed companies and their subsidiaries and affiliates;
- officers, employees and subsidiaries of fund managers;
- private companies with assets of over Y50 million;
- individual investors with at least Y100 million of investment-oriented financial assets; and
- employees' pension funds and corporate pension funds with at least Y10 billion of investment-oriented financial assets.
What rules and restrictions govern the conduct of, and investment in, initial coin offerings (ICOs)?
The PSA is applicable to any ICO (other than a securities token offering (STO) under the amendments to the Financial Instruments and Exchange Act (Act 25/1948) (FIEA) where the tokens fall within the PSA definition of cryptoassets. The prevailing view is that tokens will be considered to be a cryptoasset if there is an existing market for the tokens, demonstrated by transactions in the tokens being conducted on Japanese or foreign cryptoasset exchanges. The tokens may also be deemed to be cryptoassets even if there is no existing market for the tokens if they are not subject to significant transfer restrictions on the exchange for Japanese or foreign fiat currencies or with other cryptoassets.
The rules and guidelines of the Japanese Virtual Currency Exchange Association also apply to ICOs and include the following requirements:
- due diligence on the financial condition of issuers and the eligibility and feasibility of the underlying project;
- disclosure requirements, including an explanation of the features of the tokens, the issuer and the purpose of use of the funds;
- internal structures to mitigate against conflicts of interest and to ensure the segregation of teams conducting due diligence on an issuer from sales teams, as well as functions to evaluate conflicts of interest that may arise during the sale process;
- ongoing monitoring of issuers;
- measures to discontinue a token sale when customer protection measures are inadequate, including appropriate provisions for this purpose contained in the distribution agreement; and
- notification to the FSA.
What rules and restrictions govern the conduct of, and investment in, security token offerings (STOs)?
The previous version of the PSA did not clarify the treatment of STOs and the extent, if any, to which Japanese securities regulation might apply. The FSA tried to remedy this by announcing, on 27 October 2017, that ICOs “may fall within the scope of the PSA and/or the FIEA depending on how they are structured” and “if an ICO has the characteristics of an investment and the purchase of a token by a virtual currency is practically deemed equivalent of that by a legal tender, the ICO becomes subject to the regulations under the FIEA”.
The position has now been clarified under the PSA amendments and the FIEA amendments, with the result that the offering and trading of STOs will be exclusively subject to FIEA regulation applicable to securities.
The new requirement will apply whenever the tokens in question represent rights (transferable through electronic means and recordable in electronic devices) to share in the profits and losses of an underlying business or project, irrespective of whether the investment is funded by cryptocurrency or fiat currency (electronically recorded transferable rights (ERTRs)). The ERTRs will be deemed to represent “interests in a collective investment scheme that are represented by tokens”. However, due to the highly liquid nature of ERTRs, the FIEA amendments distinguish them from other Type 2 securities, such as interests in traditional, non-digital, collective investment schemes, and instead categorise them as Type 1 securities on par with stocks and bonds.
A Type 1 financial instruments business operator licence is required to conduct the solicitation of STOs, while a Type 2 financial instruments business operator licence is required for a self-offering by the issuer.
A Type 1 offering requires compliance with onerous disclosure requirements such as the filing of a securities registration statement and ongoing semi-annual securities reports unless the offering is structured as a private placement. The private placement exemption to a Type 1 offering requires that:
- the offering be made only to QIIs or less than 50 non-QIIs with resale restrictions embedded in the token smart contract; and
- access to the offering materials is available only through a restricted or password-protected site in order to ensure compliance with the limitations on the solicitation of non-QIIs.
An exemption is also available for a Type 2 self-offering – the so-called ‘Article 63 exemption’, which is available where there is at least one QII investor and no more than 49 eligible non-QII investors (eligibility being limited to certain sophisticated investors such as listed companies and individuals holding a securities portfolio of at least Y100 million). This exemption does not permit the participation of general investors. Additionally, if the issuer actually manages the investment of the funds collected from investors, it also needs to be licensed as an investment manager under the FIEA.
Matters relating to STOs will also be subject to the rules and regulations of the certified self-regulatory organisation.Stablecoins
What rules and restrictions govern the issue of, and investment in, stablecoins?
The FSA has taken the view that, in principle, stablecoins pegged to fiat currencies do not fall into the category of cryptoassets under the PSA.
Under current regulation, the interpretation of the legal status of stablecoins may differ depending on their precise attributes. They could, for example, be regarded as prepaid payment instruments (PPIs) under the PSA if they have the following features:
- the proprietary value is recorded (record of value);
- they are issued for a price (issuance in exchange for consideration); and
- they are used for payment for or the receipt of goods or services (use as payment or demand).
This may be problematic as it is prohibited under the PSA to redeem the value issued under a PPI. Alternatively, a payment feature associated with a stablecoin could lead it to be regarded as the transfer of funds. Both PPI issuance and funds transfer services require registration under the PSA. Stablecoins may also be regarded as currency denominated assets.
The status of stablecoins, such as Facebook`s libra, is currently under review by a study group comprised of the FSA, the Bank of Japan and the Finance Ministry of Japan.Airdrops
Are cryptoassets distributed by airdrop treated differently than other types of offering mechanisms?
Provided that a cryptoasset is distributed for zero consideration, the distribution is generally not regulated as an ICO under the PSA.Advertising and marketing
What laws and regulations govern the advertising and marketing of cryptoassets used for investment and financing?
The PSA amendments includes restrictions on advertising and solicitation by cryptoasset exchanges, including the prohibition of false representations and exaggerated advertising, as well as the prohibition of advertisements and solicitation that encourage speculation. In the case of internet-based solicitation, the FSA has indicated that this requirement would be satisfied by a mechanism whereby the customer clicks to acknowledge that they have read and understood the explanation. Where the sales proceeds of the cryptoassets are to be used for services or applied to the operation of a business operated by the issuer, or where the price is linked to underlying assets, investor explanations must include a rational explanation of the basis for the sales price.
Additionally, under the rules of the Japanese Virtual Currency Exchange Association, investors must be provided with a clear and adequate explanation of the cryptoassets commensurate with the knowledge and experience of the investor and a record of such explanation must be retained.Trading restrictions
Are investors in an ICO/STO/stablecoin subject to any restrictions on their trading after the initial offering?
In principle, investors may not trade cryptoassets with anyone other than a registered crypto exchange. Similarly, investors may not trade security tokens designated as electronically recorded transferable rights (ERTRs)with anyone other than a Type 1 financial instruments business operator or on a proprietary trading system.Crowdfunding
How are crowdfunding and cryptoasset offerings treated differently under the law?
A crowdfunding offering soliciting investment in equity stocks is exempt from a registration statement filing under the FIEA provided that the amount of the solicitation does not exceed Y100 million. The FIEA offers a small amount electronic solicitation service provider licence for equity-based crowdfunding platformers, which relaxes the regulations that would otherwise apply to a Type 1 financial instruments business operator.
Under the FIEA amendments, a similar regulation will apply to security tokens designated as electronically recorded transferable rights (ERTRs), such that an issuer of ERTRs may offer them through an equity-based crowdfunding platform pursuant to a small amount electronic solicitation service provider licence up to the amount of Y100 million without filing a registration statement.Transfer agents and share registrars
What laws and regulations govern cryptoasset transfer agents and share registrars?
In principle, a transfer of cryptoassets must be made exclusively through a cryptoasset exchange (except in the case of an STO). The cryptoasset exchanges (or a Type 1 or Type 2 financial instruments business operator in the case of an STO) are subject to requirements to maintain accurate books and records under the PSA amendments and the FIEA amendments, as well as the rules of the respective self-regulatory organisations.Anti-money laundering and know-your-customer compliance
What anti-money laundering (AML) and know-your-customer (KYC) requirements and guidelines apply to the offering of cryptoassets?
Both a cryptoasset exchange registered under the PSA and a Type 1 or Type 2 financial instruments business operator under the FIEA are defined as a `specified business operator` subject to the requirements of the Act on Prevention of the Transfer of Criminal Proceeds (Act 22/2007). Those requirements include:
- know-your-customer checks upon the opening of an account. In addition to identity verification, these requirements currently include a declaration of beneficial ownership in the case of corporate customers and the dispatch of a non-forwardable registered letter to the customer’s address;
- reporting suspicious transactions to the Japan Financial Intelligence Centre and the Japan Financial Intelligence Unit;
- record production and retention requirements; and
- PEP monitoring.
What laws and regulations apply in the context of cryptoassets to enforce government sanctions, anti-terrorism financing principles, and Financial Action Task Force (FATF) standards?
With respect to sanctions, these are overseen by the Ministry of Finance, which has jurisdiction under the Foreign Exchange and Foreign Trade Act (Act 228/1949), the key legislation for sanctions, export-import and funds controls, as well as the freezing of assets. The main sanctions that regulated entities are required to screen for are those named on a list published by the Ministry of Finance, which largely reflects the terrorist and other entities on the United Nations Security Council Consolidated List. Japan also issues autonomous sanctions, largely relating to North Korea.
Cryptoasset tradingFiat currency transactions
What rules and restrictions govern the exchange of fiat currency and cryptoassets?
The exchange of fiat currency and cryptoassets must take place via a cryptoasset exchange. Cryptoasset exchanges are subject to licensing requirements under the Payment Services Act (Act 59/2009, as amended) (PSA), as well as the rules of the relevant self-regulatory organisation.Exchanges and secondary markets
Where are investors allowed to trade cryptoassets? How are exchanges, alternative trading systems and secondary markets for cryptoassets regulated?
The trading of cryptoassets must take place via a cryptoasset exchange. Cryptoasset exchanges are subject to licensing requirements under the PSA, as well as the rules of the relevant self-regulatory organisation.Custody
How are cryptoasset custodians regulated?
Custody services for cryptoassets (ie, the holding or management of cryptoassets as a separate service from the sale, purchase or exchange of cryptoassets or the intermediation thereof) will be brought within the purview of the PSA under the PSA amendments, and any such custody services will be an activity that requires registration as a cryptoasset exchange.
New requirements for the safe keeping of cryptoassets held in custody by a cryptoasset exchange include the following:
- customer cryptoassets must be held in offline ‘cold’ wallets or similar methods, exclusive of the portion necessary to satisfy daily customer demand;
- where customer cryptoassets are not maintained in a cold wallet, the cryptoasset exchange itself must hold own-account cryptoassets of the same type and quantity as the corresponding customer cryptoassets in a segregated cold wallet.
The PSA amendments also introduce a structure whereby customers are entitled to receive preferential payment with respect to cryptoassets in the event of the insolvency of the cryptoasset exchange.Broker-dealers
How are cryptoasset broker-dealers regulated?
Cryptoasset exchanges, or Type 1 or Type 2 financial instruments business operators in the case of STOs, are subject to licensing requirements under the PSA and the Financial Instruments and Exchange Act (Act 25/1948) (FIEA), respectively, as well as the rules of the respective self-regulatory organisations.
Additionally, the PSA amendments introduce new provisions intended to strengthen the regulatory regime applicable to cryptoasset exchanges:
- expanded grounds for the rejection by the FSA of an application for registration as a cryptoasset exchange;
- a new requirement for advance notice to the FSA of any amendment to prescribed matters pertinent to a particular cryptoasset;
- new regulations with respect to advertising and solicitation of cryptoasset exchange services; and
- custody-related requirements.
The PSA amendments also introduce a structure whereby customers are entitled to receive preferential payment with respect to cryptoassets in the event of the insolvency of the cryptoasset exchange.
Additionally, under the FIEA amendments, the following acts are expressly prohibited with respect to spot and derivative cryptoasset transactions:
- wrongful acts
- the dissemination of rumours, fraudulent behaviour, assault or intimidation; and
- market manipulation.
Insider trading is not currently regulated under the FIEA amendments due to the difficulty of identifying the relevant facts.
What is the legal status of decentralised cryptoasset exchanges?
A decentralised cryptoasset exchange is subject to licensing requirements under the PSA, as well as the rules of the relevant self-regulatory organisation.
The basic idea for the decentralised cryptoasset exchange being regulated accordingly is that, regardless of whether there is a central authority which exclusively processes the exchange transactions, there must be a party that provides users both an interface which facilitates the trading of cryptoassets. Both the PSA and the FIEA regulate any intermediary activity that facilitates users to trade cryptoassets and security tokens designated as electronically recorded transferable rights (ERTRs).Peer-to-peer exchanges
What is the legal status of peer-to-peer (person-to-person) transfers of cryptoassets?
Under the definition of a cryptoasset exchange services under the PSA, the transfer of cryptoassets by way of business would trigger a licensing requirement under Article 2-7 of the PSA. The concept of ‘by way of business’ has not been defined and it is possible that even a peer-to-peer transaction could be deemed to be ‘by way of business’, particularly if transactions are repeated. Peer-to-peer transactions are therefore at risk of being deemed to infringe the PSA.Trading with anonymous parties
Trading with anonymous parties
The trading of cryptoassets must take place via a cryptoasset exchange. Cryptoasset exchanges are subject to the Act on Prevention of the Transfer of Criminal Proceeds (Act 22/2007). Any account holder with a cryptoasset exchange is subject to know-your-customer processes; therefore, it is not feasible to trade cryptoassets among anonymous parties.Foreign exchanges
Are foreign cryptocurrency exchanges subject to your jurisdiction’s laws and regulations governing cryptoasset exchanges?
A foreign cryptocurrency exchange is subject to the provisions of the PSA and the FIEA with respect to the sale, purchase or exchange of cryptoassets, or the intermediation thereof, in Japan or regarding customers resident in Japan. In addition, Article 63-22 of the PSA expressly states that a foreign cryptocurrency exchange that is not registered as a cryptoasset exchange under the PSA may not engage in solicitation directed towards persons in Japan for transactions relating to cryptoassets.
Any determination that such activities are or are not cryptoasset exchange services requiring registration as a cryptoasset exchange depends on all the facts and the precise nature of the activity in question.
With respect to internet-based advertising by foreign cryptocurrency exchanges, the FSA has issued guidance to the effect that online advertising by a foreign cryptocurrency exchange raises a presumption that the exchange is engaging in solicitation towards Japanese residents unless reasonable measures are taken to prevent the firm from providing services to Japanese residents. Such measures include:
- disclaimers in the Japanese language that are readily visible to a Japanese resident on the site’s landing page;
- measures to prevent the acceptance of orders from investors in Japan, such as vetting communications from investors to exclude residential or email addresses located in Japan; and
- refraining from establishing physical facilities in Japan. In the event that an offending website comes to the attention of the FSA, the service provider will be listed on the FSA’s blacklist, which will be published on the FSA’s website.
The blacklist is readily reviewed by financial authorities of other jurisdictions. In some cases, this results in offenders being scrutinised by their home country authorities.
Under what circumstances may a citizen of your jurisdiction lawfully exchange cryptoassets on a foreign exchange?
No restrictions apply to a citizen of Japan transacting cryptoassets on a foreign exchange; however, solicitation of a Japanese resident in Japan by any person not registered as a cryptoasset exchange is a breach of the PSA.Taxes
Do any tax liabilities arise in the exchange of cryptoassets (for both other cryptoassets and fiat currencies)?
The sale of cryptocurrency is generally subject to consumption tax where the seller is located in Japan; however, under an amendment introduced in 2017, there is an exemption for the sale of cryptocurrencies that constitute cryptoassets under the PSA.
Further, the National Tax Agency takes the position that gains generated by the sale or use of cryptoassets are to be treated as miscellaneous income (and taxed at rates of 15% to 55% in cases where the taxpayer is unable to offset losses incurred elsewhere against the gains generated by the sale or use of the cryptoasset).
Additionally, cryptoassets held in the estate of a deceased person will be subject to inheritance tax.
In August 2019 the Japanese tax authorities announced that crypto-related businesses and individuals have failed to report crypto gains valued at Y10 billion ($93 million) and that a major investigation was to be carried out to identify delinquent companies and individuals.
Cryptoassets used for paymentsGovernment-recognised assets
Has the government recognised any cryptoassets as a lawful form of payment or issued its own cryptoassets?
The government has not issued its own cryptoassetsBitcoin
Does Bitcoin have any special status among cryptoassets?
Bitcoin is recognised as a cryptoasset and the government has identified it and other virtual currency as a form of payment method, although not as a legally recognised currency.Banks and other financial institutions
Do any banks or other financial institutions allow cryptocurrency accounts?
While banks are not expressly prohibited from offering cryptocurrency accounts, in practice there are difficulties in doing so, such as how to take account of cryptoassets for purposes of capital or liquidity requirements. Bank subsidiaries are not currently permitted to obtain a cryptoasset exchange licence, whereas securities company subsidiaries are, subject to the approval of the FSA.
Cryptocurrency miningLegal status
What is the legal status of cryptocurrency mining activities?
As a general matter, cryptocurrency mining does not fall within the scope of a regulated activity under the Payment Services Act (Act 59/2009, as amended).Government views
What views have been expressed by government officials regarding cryptocurrency mining?
The government is neutral as far as cryptocurrency mining is concerned. A different consideration may be required with the staking business for cryptocurrency, which applies a proof-of-stake verification method.Cryptocurrency mining licences
Are any licences required to engage in cryptocurrency mining?
No licences are required to engage in cryptocurrency mining.Taxes
How is the acquisition of cryptocurrency by cryptocurrency mining taxed?
Cryptoassets acquired through mining are subject to tax as business income or miscellaneous income and are included in total revenues. Corporate tax also applies, with the market value counted as profit.
In either case, expenses associated with the mining may be treated as expenses and deducted.
Market value is determined as at the time of acquisition.
Blockchain and other distributed ledger technologiesNode licensing
Are any licences required to operate a blockchain/DLT node?
No licences are required.Restrictions on node operations
Is the operation of a blockchain/DLT node subject to any restrictions?
No particular restrictions apply.DAO liabilities
What legal liabilities do the participants in a decentralised autonomous organisation (DAO) have?
No particular legal liabilities apply under applicable law (other than as described elsewhere). The rights and liabilities of the DAO would depend on the relevant off-chain contractual terms and conditions.DAO assets
Who owns the assets of a DAO?
Ownership of the assets of a DAO depends on how the DAO is structured and the relevant contractual terms and conditions.Open source
Is DLT based on open-source protocols or software treated differently under the law than private DLT?
DLT based on open-source protocols or software is not treated differently under the law compared with a private DLT.Smart contracts
Are smart contracts legally enforceable?
Under the current interpretation, smart contracts are generally considered to be software code rather than contracts. However, depending on the applicable structure, contractual terms may be ascribed to a smart contract, in which case the contract would be enforceable, subject to applicable Japanese law.Blockchain/DLT technology can be patented.Patents
Can blockchain/DLT technology be patented?
Blockchain/DLT technology can be patented.
Update and trendsRecent developments
Are there any emerging trends, notable rulings or hot topics related to cryptoassets or blockchain in your jurisdiction?
The Financial Instruments and Exchange Act (Act 25/1948) amendments, which introduce new tougher regulation for securities token offerings, are one of the major emerging trends in terms of market impact. Other hot topics are the treatment of stablecoin in the wake of the announcement of the Libra cryptocurrency by Facebook and the tax authorities’ announced crackdown on tax evasion with respect to income derived from cryptocurrencies.
Law stated dateCorrect on
Give the date on which the above content is accurate.
22 November 2019.