News: Regulation of cryptocurrency in Japan

On April 1, 2017, amendments to the Law on Cash Settlements and the Law on the Prevention of Transfer of Funds Obtained by Conducting Criminal Activities came into effect in Japan.

The above changes set the regulation of cryptocurrency exchanges (CCE) and cryptocurrencies.

The CCEs are required to be registered with the Financial Services Agency of Japan.

There is a specific definition for CCE, namely: these are the companies that:

• Sell/buy cryptocurrency;

• Change one type of cryptocurrency for another one or exchange cryptocurrency for fiat money;

• Are engaged in intermediary activities in the above transactions.

The CCEs are required to comply with the following requirements:

Mandatory office in Japan

In addition to the registered legal address in Japan, presence of an operating office in the territory of this jurisdiction is compulsory.

Separation/segregation of Assets

Assets of the CCE and the client should be separated, and more specifically:

• own fiat funds are deposited separately from the client’s funds (in separate bank accounts);

• it is necessary to establish the ownership of cryptocurrency or fiat funds to a specific client;

• own cryptocurrency should be separate from the client’s cryptocurrency on blockchain.

Audit

Audit of financial statements should be mandatorily carried out every year.

Identification of clients

Before opening an account, the client should undergo the identification process.

Providing information to clients

In order to protect the client's interests, they are provided with the following information:

• Client receives the information  in full on his account, regarding all transactions conducted, on all commission fees and procedure for filing a complaint.

• Client is provided with information on the lack of guarantees for exchanging cryptocurrency into fiat funds.

Protection of personal data

All personal data about clients should be secured with the highest protection from CCE.

Submission of reports and accounting

Providing reports to the Financial Services Agency of Japan, storing documents related to the activities of CCE, as well as keeping accounting records are mandatory!

The activities of CCE in Japan can be carried out by the company if it is:

• established in Japan in the form of a joint-stock company (Kabushiki Kaisha);

• established outside of Japan and has a license to carry out cryptocurrency operations, which it received in another country.

Taxation of the activities of CCE

Since July 1, 2017, transactions related to the exchange of cryptocurrencies for fiat money are exempt from taxes.

What are the taxes on profits?

•  Income from exchange transactions are taxed as regular income.

• 23.4 percent can be referred to as general rate of corporate tax on income of the organizations

• 30 or 35 percent can be referred to as aggregated effective tax rate

• There is also a possibility that the income of companies may be subject to additional taxes that are established at the regional or municipal level.

Lawyers of Law&Trust International will be happy to provide full legal support in this area.

We are ready to offer legal maintenance regarding ICO to start-ups and full legal support on all related issues.
We can provide crypto-exchange offices, crypto-funds, miners or investors with:

- structured schemes of operation of crypto-exchange offices;

- preparation of documentation concluded with the investor;

- legal structuring of crypt-funds and /or mining activity.