The Virtual Currency Act has been approved. Below, we answer the most frequently asked questions we have received. The Virtual Currency Act explained The Bill to Revise Portions of the Banking Act to Account for Changes to the Economy per the Growth of Telecommunications Technologies has been approved. Section 3 of this bill now includes wording on virtual currency and is being tentatively called the "Virtual Currency Act." Click here for more info. Government ordinances regarding the virtual currency exchange industry (Cabinet Office Ordinance concerning Virtual Currency Exchange Service Providers, Order for Enforcement of the Act on Prevention of Transfer of Criminal Proceeds) have been officially announced. See these ordinances here. Date of enforcement The date of enforcement of the law (the date when the new law becomes effective) is April 1, 2017. Virtual Currency Act Act on Financial Transactions, Article 2, Section 5 Virtual currency as described in this Act refers to: 1. Asset-like values (limited to those items electronically recorded by electronic or other equipment and excluding Japanese currency, foreign currency, and currency-denominated assets; the same applies to the item below) usable as payment to indefinite parties for the cost of purchase or rent of items or receipt of services and which can be transferred by means of electronic data processing systems; 2. Asset-like values that can be used in exchange with indefinite parties for those items described in the preceding item and which can be transferred by means of electronic data processing systems. Is Bitcoin an asset or a currency? The new law defines Bitcoin and other virtual currency as a form of payment method, not a legally-recognized currency. Bitcoin will continue to be treated as an asset unless there are future revisions or directives to Japanese tax law. How does this affect accounting practices? Virtual currencies are not financial instruments. In Japan, they are currently treated as "things" and considered assets for accounting purposes. We have received many inquiries asking whether they should be recorded at market rate or book value -- accounting practices differ from company to company, so this is left up to the individual organization in question. How does this affect consumption tax? 2017 tax reforms exempting virtual currency trading from consumption tax will become effective July 1, 2017. Click here for more info. How does this affect capital gains tax? If income obtained from virtual currency is earned at the individual level, this is (per Japanese taxation standards) treated as miscellaneous income and subject to tax on aggregate income. For corporations, it is treated as operating revenue. Is digital currency covered by this law? Digital currency is not virtual currency in general. Digital currency is a currency-denominated asset and is excluded from Item 1 of Section 5, Article 2 of the Virtual Currency Act. Per this law, currency-denominated assets are those assets displayed in Japanese or foreign currency, or those assets against which monetary obligation or repayment, or acts analogous to the same (hereafter, "monetary obligations"), are performed in Japanese or foreign currency. Assets against which monetary obligation are performed in a currency-denominated asset are treated as currency-denominated assets. * For further details on the tax implications of virtual currency, please contact the respective tax office or consult with a tax accountant. The Japanese tax authorities' formal opinion on this matter is as above, but this stance may change in the future. Yuzo Kano and bitFlyer, Inc. waive all responsibility for the tax reporting and obligations of, and any damages sustained by, third parties. Click here for more info.