Yasuhigto Yagihashi（Certified public tax accountant at CryptoLinC）
In this article, I would like to summarize the taxation system of crypto assets in Japan in the following three parts.
Part 1 : Definition of Crypto Assets and Tax Division
Part 2：Timing and Calculation of profit and Loss of Crypto Assets.
Part 3 : Corporate Taxation System
As Part 1 is about “Definition of Crypto Assets and Tax Division”, I would like to introduce “in what position the crypto assets are”, and “what the tax classifications are for crypto assets” in Japan.
In Japan, the concept of doing a final tax return on crypto asset investments made by private people was officially announced by the National Tax Agency of Japan in December 2017,declaring “How to calculate income on Crypto Assets” as well as another announcement in November 2018 called “Tax handling of Crypto Assets” guidelines. Moreover, handling of cryptocurrencies was clearly stated in the tax system revision of 2019.
On the basis of the announced information, I will explain the handling of crypto assets in Japan.
■Definition of Crypto Asset
In Japan, the definition for Crypto Assets(暗号資産) is as the following.
The term “Crypto Assets” used in this Act has the following meaning:
(i) property value (limited to that which is recorded on an electronic device or any other object by electronic means, and excluding the Japanese currency, foreign currencies, and Currency-Denominated Assets; the same applies in the following item) which can be used in relation to unspecified persons for the purpose of paying consideration for the purchase or leasing of goods or the receipt of provision of services and can also be purchased from and sold to unspecified persons acting as counterparties, and which can be transferred by means of an electronic data processing system; and
(ii) property value which can be mutually exchanged with what is set forth in the preceding item with unspecified persons acting as counterparties, and which can be transferred by means of an electronic data processing system.
In brief,
Crypto Assets have a property value that can be used for purchases, etc., converted to legal tender, traded with an unspecified number of people, and that can be recorded and transferred by electronic means.
There are 2 requirements in the Payment Service Act, and at least one must be met.
Therefore,
As in the preceding paragraph, if a property value either can be used for purchases, etc., or that can be traded with an unspecified large number of people. (≒ available market) , it will be considered a crypto asset.
Crypto Assets are not considered to be “legal tender”
In other words, crypto assets are considered to be electronic cryptography (something that has property value) that can be converted to legal tender or that have a market price (invisible).
■Tax Classification
As announced by Japan’s National Tax Agency, profits by crypto assets are, in principle, classified as “Miscellaneous Income”(雑所得)
Starting with Bitcoin, profits by trading or using crypto assets, except for if it arises incidental to each Income-based act of Corporation Income, in principle, will be classified as Miscellaneous Income, and a tax return of income will be required.
Please refer to the following link if you would like to read more about Miscellaneous Income.
（https://www.nta.go.jp/m/taxanswer/1500.htm）
In cases of sale, the exchange in between crypto assets are also included. Even if you do not convert it to legal tender, it will be regarded as a sale.
Please note that even if you use it, it will be considered to have sold it and thus profit and loss will occur.
In principle, a crypto asset profit will be classified as Miscellaneous Income. However, the following items will not be classified as Miscellaneous Income:
In case of crypto asset trading is incidental to an act that results in corporate income, etc.
In case of a corporation income entity holding Bitcoin as a business asset, and uses it as a payment method, it will be treated as business income when it makes profit or loss from its use.
In case of the crypto asset trading itself is recognized as a business.
In case if it is objectively clear that the income is used to make a living, or if the crypto-asset trading is recognized as a business, the income category will be business income.
It is important to note that the criteria of “earning a living is objectively clear” may differ from person to person. Hence, it is recommended to consult with a professional when filing a tax return for the above income category
■Consumption Tax Handling
The current treatment of consumption tax on crypto assets is a tax exemption.
Due to the 2017 tax revision that went into effect 1st July, 2017, the handling of crypto assets was changed to exemption of the consumption tax.
Please note that the Consumption Taxpayer Businesses will be affected prior to this.
① Classification by Individual Support Correspondence Method
Regarding crypto assets transferred on or before 1st July 2017, if input tax credit is calculated by Individual correspondence method, the purchasing category will fall under “Taxable Purchases Required only for Transfer of Taxable Assets”
② Input tax credit inapplicability
In case of you held more than 1 000 000 Yen (excl. tax) on 30th June 2017 worth of crypto assets (limited to domestic transfers), if the volume of held crypto assets on the same day increases relative to the average volume of crypto assets held on each day during the 1st June 2017 to 30th June 2017, the tax credit system will not be allowed to apply to the Consumption tax on Taxable purchases for the portion of the increase.
As mentioned above, crypto assets are currently tax exempted. However, if you are eligible, please note that the handling of consumption tax on crypto assets has changed since 1st July 2017.
In this article, the definition of crypto assets, and Tax classifications were introduced.
In the next article, “Timing and Calculation of profit and Loss of Crypto Assets” will be introduced.
This article has been translated by Lina Kamada
【Disclaimer】
The Article published on this our Homepage are only for the purpose of providing information. This is not intended as a solicitation for cryptocurrency trading. Also, this article is the author’s personal opinions, and this does not represent opinion for the Company BTCBOX co.,Ltd.