Japan's new virtual currency regulations will take effect in April, making Bitcoin a legal payment method

Bitcoin will soon become a legal form of payment in Japan. The bill, which includes new rules for cryptocurrencies, has passed the public consultation phase and is expected to come into effect in April.

Bitcoin.com spoke to Ken Kawai, special counsel at Anderson Mori & Tomotsune, about the bill’s impact on Bitcoin. Ken Kawai has spoken several times in Japan about virtual currency regulation and legal issues.

The long-awaited bill

Since the birth of Bitcoin, its legal status in Japan has always been unclear. The new bill, which was submitted to the Diet in March last year, made regulations on virtual currencies such as Bitcoin for the first time, amending the existing Payment Services Act and the Anti-Criminal Proceeds Transfer Act.

Kawai said:

The revised version of the Payment Services Act, which forms the infrastructure for virtual currency regulation, was officially announced in October last year.

The relevant regulatory details and draft guidelines were released in December, and the public opinion survey officially ended on January 27 this year. He added:

The new regulations will come into effect in April 2017.

New payment methods

The bill defines virtual currencies such as Bitcoin. In line with the goals of anti-money laundering, combating terrorist financing, and protecting users, the bill also proposes specific regulatory rules for virtual currency exchange services.

However, the bill only defines virtual currency as a new type of payment method, not as “currency.” Kawai stressed:

In this new regulation, there is a clear distinction between the definitions of 'virtual currency' and 'currency'.

Although the government has not defined Bitcoin as a currency, he believes that official recognition of it as a new payment method can also "have a positive impact and promote the use of virtual currency (VC)."

Bitcoin usage in Japan has grown significantly. Japanese exchange Coincheck has seen a surge in users, from 14,000 in April last year to 76,400 in January this year. In addition, the exchange also noted that the number of merchants accepting Bitcoin payments in the country is also rising. Japan's largest Internet giant, GMO Internet Group, also recently announced that it would launch its own Bitcoin exchange and wallet service.

In addition, according to data from Coinhills, Japan is currently the second largest country in the world in terms of Bitcoin trading volume.

Bitcoin Legal Developments in Japan

Kawai explained that while the lack of a “currency” title would not affect Bitcoin’s use in a traditional sense, from a legal perspective, there is a world of difference as to whether Bitcoin can eventually qualify as a “currency.”

For example, if virtual currency (VC) is defined as 'currency', then VC's lending activities need to comply with the Currency Lending Control Law (lenders need to register as 'lenders'); in addition, VC's derivatives must comply with the relevant provisions of the Financial Instruments Exchange Law.

For tax purposes, other countries such as the United States define virtual currencies as an asset or property. Recently, the Israeli tax authorities issued a draft that defines Bitcoin as an asset, so Bitcoin transactions in the country are subject to value-added tax (VAT) and capital gains tax.

However, Kawai pointed out that the Japanese bill does not include virtual currency in the category of "property", but defines it as a "property value." He added that the Tokyo District Court once denied the concept of "property rights" in Bitcoin.