Recently, I have been consulting on registration and taxation for virtual currency exchange services. Below is a very brief overview of some issues considered in that work.
1. What Are Cryptocurrencies and Virtual Currencies?
Cryptocurrency enthusiasts will be familiar with CryptoCurrency Market Capitalizations , a website
that lets users compare the market capitalizations of various cryptocurrencies.
The literal Japanese translation of “cryptocurrency” is “ango tsuka.”
Wikipedia According to,
A cryptocurrency is a virtual currency that uses cryptography to secure transactions and control the creation of new units.
That is one definition, but personally, bitFlyer I find the following definition easier to understand. (Quoted below.)
A cryptocurrency is a currency that uses cryptographic technology for security. It is also called virtual currency or a record of value. Technologies used include public-key cryptography, hashes, and digital signatures combining both.
Fiat currency is often presented as the counterpart to cryptocurrency. Fiat currency, such as Japanese yen or U.S. dollars, is currency whose value is guaranteed by law. It is also called legal currency.
Third-party payment instruments such as electronic money are not included in cryptocurrency.
Personally, I understand “cryptocurrency” as a conceptual term, while the amended Payment Services Act uses the legally defined term “virtual currency.”
As shown at the following link,
http://www.fsa.go.jp/common/diet/index.html
Bills Submitted to the Diet (190th Session)
Enacted Legislation
Act Partially Amending the Banking Act and Other Acts to Address Environmental Changes Including Advances in Information and Communications Technology
(Submitted March 4, 2016; enacted May 25, 2016)
Act and Reasons (PDF: 1,117 KB)
http://www.fsa.go.jp/common/diet/190/01/riyuu.pdf
There is a PDF with this title, which states:
In Article 2, Paragraph 7 shall become Paragraph 12, Paragraph 6 shall become Paragraph 11, Paragraph 5 shall become Paragraph 10, and the following five paragraphs shall be inserted after Paragraph 4.
5. In this Act, “virtual currency” means the following:
(i) Property value that can be used to pay unspecified persons for goods purchased or borrowed or services received, and that can be purchased from and sold to unspecified persons (limited to value recorded electronically on electronic devices or other objects, and excluding Japanese currency, foreign currency, and currency-denominated assets; the same applies in the following item), which can be transferred using an electronic data processing system.
(ii) Property value that can be mutually exchanged with unspecified persons for the property value listed in the preceding item and can be transferred using an electronic data processing system.
This provides the statutory definition of “virtual currency.”
The well-known Bitcoin is one type of cryptocurrency (virtual currency), but its name also seems to be used as a synonym for the category as a whole.
For Bitcoin, Wikipedia's explanation is easy to understand.
2. What Are Virtual Currency Exchange Services?
The same PDF of the amended Payment Services Act mentioned above also defines “virtual currency exchange services.”
The following continues the earlier quotation. (Paragraph 6 defines so-called fiat-currency-denominated assets.)
7. In this Act, “virtual currency exchange services” means conducting any of the following activities in the course of business, and “exchange of virtual currency and related activities” means the activities listed in Items (i) and (ii).
(i) Purchase and sale of virtual currency or exchange for another virtual currency
(ii) Intermediation, brokerage, or agency for the activities listed in the preceding item
(iii) Management of users' money or virtual currency in connection with the activities listed in the preceding two items that the provider conducts.
As the statute states, buying and selling virtual currencies, exchanging one for another, or providing intermediation, brokerage, or agency for these activities in the course of business constitutes virtual currency exchange services. Registration is required, as follows.
8. In this Act, “virtual currency exchange service provider” means a person registered under Article 63-2.
Article 63-2 states the following.
(Registration of Virtual Currency Exchange Service Providers)
Article 63-2: No person may conduct virtual currency exchange services without registration by the Prime Minister.
In practice, an application is made to the Local Finance Bureau as shown below, and registration follows its acceptance.
As of May 31, 2017, there appear to be no registered virtual currency exchange service providers yet.
The list includes a note that is important through September 30, 2017, reproduced below.
* Under the transitional provisions accompanying the partial amendment of the Payment Services Act, persons already conducting virtual currency exchange services before April 1, 2017 may continue those services for six months from April 1, 2017, notwithstanding Article 63-2 of the new Payment Services Act. See the following statutory provisions for details.
■ Act Partially Amending the Banking Act and Other Acts to Address Environmental Changes Including Advances in Information and Communications Technology (Act No. 62 of 2016), Supplementary Provisions (Excerpt)
(Transitional Measures Accompanying the Partial Amendment of the Payment Services Act)
Article 8: A person conducting virtual currency exchange services at the time this Act takes effect (meaning the services defined in Article 2, Paragraph 7 of the Payment Services Act as amended by Article 11, referred to in this Article as the “new Payment Services Act”; the same applies below) may continue those services for six months from the effective date, notwithstanding Article 63-2 of the new Payment Services Act. If registration is refused under Article 63-5, Paragraph 1 during that period, or cessation of all virtual currency exchange services is ordered under Article 63-17, Paragraph 1 as applied with the modifications under the following paragraph, this period ends on the date of that refusal or order. Where the person applies for registration under Article 63-2 within that period and the period expires, the same applies until registration is granted or refused.
2. Where a person may conduct virtual currency exchange services under the preceding paragraph, the new Payment Services Act applies by deeming that person a virtual currency exchange service provider as defined in Article 2, Paragraph 8 of that Act. In this case, “revoke the registration under Article 63-2” in Article 63-17, Paragraph 1 shall be read as “order cessation of all virtual currency exchange services,” and other necessary technical substitutions shall be prescribed by Cabinet Order.
3. Where cessation of all virtual currency exchange services is ordered under Article 63-17, Paragraph 1 of the new Payment Services Act as applied with the modifications under the preceding paragraph, that Act applies by deeming the person subject to the order to be a person whose registration under Article 63-2 was revoked under that paragraph, and the date of the cessation order to be the date of revocation.
The following materials are also useful and may help illustrate how demanding registration as a virtual currency exchange service provider appears to be.
Financial Services Agency: Volume III — Financial Companies
http://www.fsa.go.jp/common/law/guide/kaisya/
16. Virtual Currency Exchange Service Providers
http://www.fsa.go.jp/common/law/guide/kaisya/16.pdf
3. Does Conducting an ICO Constitute a Virtual Currency Exchange Service?
ICOs (Initial Coin Offerings) are a hot topic in cryptocurrency circles.
The following articles provide useful background on ICOs.
Ethereum Based BAT ICO Raises $36 Million in 30 Seconds to Disrupt Advertising
http://www.trustnodes.com/2017/05/31/ethereum-based-bat-ico-raises-36-million-30-seconds-disrupt-advertising
The article above describes an ICO by BAT, an advertising-related token (tokens are also a type of cryptocurrency), which raised approximately JPY4 billion in 30 seconds.
Other examples include the following.
Bitcoin News: Keynes's Bancor Currency Revived for the Modern Era Raises JPY16.7 Billion Through a Blockchain ICO
http://btcnews.jp/5k8o872y11509/
These are astonishing amounts, and I expect startups in Japan may seek to conduct ICOs. If these tokens also constitute virtual currency under the amended Payment Services Act, their activities would seem to fall precisely within “(i) purchase and sale of virtual currency or exchange for another virtual currency” conducted “in the course of business.” My personal view is therefore that registration as a virtual currency exchange service provider is required.
4. Taxation of Virtual Currencies
First, as shown below, the FY2017 tax reform makes transactions conducted on or after July 1, 2017 exempt from consumption tax.
Ministry of Finance: FY2017 Tax Reform (Published April 2017)
http://www.mof.go.jp/tax_policy/publication/brochure/zeisei17.htm
3. Consumption Taxation (PDF: 795 KB)
http://www.mof.go.jp/tax_policy/publication/brochure/zeisei17_pdf/zeisei17_03.pdf
Revision of the Tax Treatment of Virtual Currencies
In light of the amended Payment Services Act's recognition of virtual currencies as a means of payment and their tax treatment in other countries, virtual currency transactions will be exempt from consumption tax.
* Applies to transactions conducted on or after July 1, 2017.
However, my understanding is that no clear tax reform has yet been introduced for other taxes, so their treatment must be understood by applying existing law.
There seems to be considerable confusion in practice. For example, the explanation on bitFlyer's page below is easy to understand, and I broadly agree with it.
bitFlyer: Taxes on Bitcoin and Other Virtual Currencies
https://bitflyer.jp/ja/digital-currency-tax/capital-gain
Other interesting materials include the series of written questions to the House of Councillors about Bitcoin and the government's written answers linked below.
Bitcoin Japanese Information Site: Bitcoin and Income Tax (2016)
https://jpbitcoin.com/about/incometax
Stocks and FX are covered by established legislation, with mechanisms such as withholding that can complete the taxation process, but virtual currencies do not yet have equivalent legislation.
According to bitFlyer's website, bitFlyer alone has already seen “Monthly Bitcoin Trading Volume Reaches a Record High, Exceeding JPY800 Billion!,” so I worry that there could actually be an enormous number of unreported transactions.
5. Summary
If you are interested in virtual currency exchange services or ICOs, or have made substantial cryptocurrency profits and are unsure how to file your tax return, please feel free to contact our office.
This article is a general explanation based on laws and regulations as of September 6, 2026. Please consult us about your individual circumstances before taking action.
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