Japan is one of the world’s leading countries in IT and crypto. It was among the first countries to create a regulation policy for cryptocurrencies and make them legal tender. Below we’ll review the key aspects of the country’s crypto industry regulations, legal and individual legislation, and the top cryptocurrency exchanges.
Crypto Regulation in Japan
The Financial Services Agency (FSA) is the main government body in Japan responsible for regulating the cryptocurrency sector. The FSA oversees trading and exchange operations of digital assets and ensures compliance with the Payment Services Act (PSA) passed by Japanese parliamentarians in 2009.
The PSA governs digital assets in the country. The Act prescribes mechanisms for regulating cryptocurrency transactions and licensing of crypto companies and defines the field of action of digital assets. Besides, Anti-Money Laundering (AML) and Financial Instruments and Exchange Act (FIEA) regulations apply to digital asset transactions.
In October 2022, the Cabinet of Japan drafted and sent amendments to the AML rules for parliamentary approval. So, crypto exchanges must share customer names and addresses when making transfers between platforms. Cryptocurrency organizations can be fined for failing to comply with these requirements.
In May 2020, amendments to the Financial Instruments and Exchange Act also took effect. Virtual currencies were renamed cryptocurrency assets, and digital currency exchange service providers became crypto-asset exchange service providers. Security tokens received the status of securities and fell under the Financial Instruments and Exchanges Act. Holders of such tokens are now required to submit an application for security registration, the data from which is publicly available. The law also obliges all holders to prepare annual reports and comply with additional rules on continuous and public disclosure.
The current law’s amendments aim to protect user rights due to multiple hacking incidents of major crypto exchanges in Japan. For example, hackers stole over 580 million USDT from Tech Bureau and Coincheck accounts in 2018. Moreover, the 2014 hack of the BTC exchange Mt. Gox led to the first major fall of Bitcoin. Up to 850,000 BTC was stolen at the time, and the consequences of these events are still affecting the cryptocurrency market.
Cryptocurrency for Legal Entities
According to the Payment Services Act, all cryptocurrency companies providing crypto exchange services in Japan are considered to be payment institutions and must be licensed as such. A joint stock company is a legal form for such activities.
Service providers exchanging crypto-assets via wallets are also subject to mandatory registration. If a crypto wallet isn’t used for exchange operations, registration isn’t obligatory.
To obtain a license for cryptocurrency transactions, companies must meet the following requirements:
- having an office in Japan;
- the minimum amount of authorized capital is 10 million JPY (~$90,000);
- strict compliance with AML principles and current legislation regarding the regulation of digital assets;
- staff must include a local representative (a citizen or a resident of Japan), a Compliance Manager to address compliance issues with local laws, and an Internal Audit Specialist.
Collecting and submitting documents and further consultations with the regulator can take two to three months. The response to filing documents for crypto company registration can be expected within one to two months.
Note that cryptocurrency businesses in Japan are required to pay a 30% corporate tax. In late August 2022, Bloomberg reported that the Financial Services Agency of Japan took the initiative to revise the corporate tax rate to attract investment and further strengthen the country’s economy.
Cryptocurrency for Individuals
Cryptocurrencies in Japan can be officially used as legal tender. This applies to both crypto companies and individuals.
The income tax rate for individuals can range from 5 to 45%, depending on the category. Furthermore, there’s a 10% mandatory municipal tax in Japan. In 2023, members of the Japanese Virtual Currency Exchange Association expect the government to revise the tax program for the cryptocurrency sector and reduce the tax rate for private investors to 20%.
Japan’s parliamentarians also plan to consider introducing tax breaks or completely removing limits for private investors under the Nippon Individual Savings Account (NISA) program by the end of 2022, following the FSA’s initiative. As of October 2022, it’s possible to invest in stocks, funds, and trusts with a maximum limit of 6 million JPY (no more than 1.2 million JPY per year) for a five-year period under the regular NISA program. If the limit of 6 million JPY is exceeded, the tax will be imposed. The other type of NISA allows for tax-free investments of up to 8 million JPY over 20 years (up to 400,000 JPY per year).
In early August 2022, Gaia announced plans to install about 50 cryptocurrency ATMs in Japan within 12 months. The first machines have already been put into operation in Tokyo and Osaka and support BTC, LTC, ETH, and BCH transactions. The company intends to install up to 130 more ATMs across the country over the next three years.
The ATMs currently have a withdrawal limit of no more than $2,290 per day. To withdraw cash, users need to register with Gaia, open a cryptocurrency account, and get a special card. When withdrawing funds via the ATM, digital assets are automatically converted into fiat.
In August 2022, Japan’s largest bank, Shinsei Bank, launched a cryptocurrency reward program for new customers. They receive crypto coupons for opening a bank account or a term deposit, which entitle them to get BTC or XRP. “Cashing out” the coupons can be done on the SBI VC Trade platform.
Top 5 Crypto Exchanges in Japan
In Japan, users can legally trade on cryptocurrency exchanges. A special organization, Japan’s Virtual Crypto Assets Exchange Association, has been created to regulate local crypto exchanges. The official website provides a list of all legal platforms operating in Japan. As of 2022, more than 40 exchanges are on the JVCEA list.
Top 5 most popular cryptocurrency exchanges in Japan:
- BitFlyer. The largest crypto exchange, which started operations in 2014. At the moment, the number of registered accounts exceeds 2.5 million. BitFlyer’s daily turnover surpassed $164 million in February this year.
- Liquid. The platform appeared in 2018 after Quoine and Qryptos merged. In October 2022, 613 trading pairs were available on Liquid, and the daily trading volume reached $98 million early this year.
- Coincheck. The exchange received a license from the Japanese regulator in 2017. As of October 25, the daily trading volume reached more than $27 million. From October 2018 through February 2019, the Coincheck mobile app was downloaded by over 1.7 million users.
- Huobi. An international cryptocurrency exchange headquartered in Japan. According to the website, the user makes up tens of millions of people from 170 countries across the globe. As of October 2022, the daily trading volume amounted to $453 million, and the number of trading pairs was 1,337.
- Zaif. The platform was created by the Tech Bureau startup in 2014. The daily trading volume reached $692,000 as of October 2022. Only Japanese users can register on Zaif.
Japanese crypto exchanges such as Himalaya Exchange Japan, SBI VC Trade, and FTX Japan can also be highlighted.
Japan is one of the first countries to have clear legal regulations for cryptocurrencies, and they have been recognized as legal tender. The country has rather high taxes applied to the crypto industry, however, the government pays a lot of attention to the Web3 sector developed by the Ministry of Finance. At the state level, attention is also paid to training qualified specialists for the blockchain industry. In short, even though Japan isn’t considered a friendly jurisdiction for the cryptocurrency sector, it’s still one of the top five in the Asian Pacific region for the number of cryptocurrency startups.
