Japan Declares Sale of Bitcoin Exempt from Consumption Tax

March has been a busy month for Bitcoin in Japan. The country officially recognizes Bitcoin as a method of payment today. While Japan prepares to recognize the digital currency, its long-awaited tax reform bills have also been passed this week. One area the bills address is the consumption tax treatment of digital currencies including bitcoin.

Also read: How Japan Prepares to Recognize Bitcoin as Method of Payment on April 1

Japan’s Consumption Tax

The consumption tax is the tax levied on spending on goods and services by the Consumption Tax Law, a municipal law in Japan. “This system can be considered Japan Declares Sale of Bitcoin Exempt from Consumption Taxas similar to the VAT (value-added tax), GST (goods and services tax) or sales tax”, describes Kyoto City Official Travel Guide website.

Deloitte Japan explains that, before the tax bills were passed, digital currencies such as bitcoin “do not fall under the category of exempt sales, and as a result, the sale of virtual currencies in Japan have been treated as taxable for JCT [Japanese Consumption Tax] purposes”.

In Japan, the consumption tax is currently a flat 8 percent on all items, but it is scheduled to increase to 10% in October 2019.

No More Consumption Tax on Sale of Bitcoin

On March 27, the Japanese National Diet passed the 2017 tax reforms bills which include amendments to the Fund Settlement Law, enacted last May. The proposed amendments were agreed on by Japan’s ruling coalition last December. The Fund Settlement Law “newly defined “virtual currency” as a means of settlement”, according to Deloitte Japan, which explains:

The sale of virtual currency as defined under the new Fund Settlement Law be exempt from JCT. This change will apply to sales/purchase transactions performed in Japan on or after 1 July 2017.

But There are Still Other Taxes

The new rule defines digital currencies as “asset-like values” that “can be used in making payments and can be transferred digitally”, reports Japan Times. Therefore, bitcoin and other digital currencies are no longer liable for consumption tax of 8%. However, being asset-like, digital currency trading is still liable for capital gains tax.

“Profits from trading bitcoin, when coming from continuous trading for the purpose of Japan Declares Sale of Bitcoin Exempt from Consumption Taxgenerating profit, can be considered as income from business activities or miscellaneous income”, explains Japan’s largest exchange by volume, Bitflyer. “However, in the case of the sale of bitcoin held for investment purposes it can be considered a capital gain”.

Special thanks to: Anderson Mori & Tomotsune’s special counsel, Ken Kawai, for help in interpreting Japanese law.

What do you think of Japan dropping consumption tax on bitcoin? Let us know in the comments section below.

Images courtesy of Shutterstock and Bitflyer

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  • Frank Zeleniuk

    Of course, they should drop the consumption tax on Bitcoin, it’s a digital currency. It is also not capital or wealth so it should not be subject to capital gains either. It is only a representation or symbol of wealth, as is all money today. Money has become merely a method of accounting. If it becomes recognized by government as a “legal tender” it will also be subject to the income tax as income, the most vile form of tax.

    • sjs

      Relax, passing a ‘law’ and enforcing and policing it are two different things. Only 807 US tax payers declared their Crypto profits in 2015? That leaves an awful lot of non-complying and difficult or impossible to trace crypto users. How often do you speed and how many times do you receive a ticket? How many wildebeest cross the stream and how many are taken by crocodiles?

      • Ricky Bickerton

        It only classed as profit, once you exchange it for Fiat. Traders that keep all their profit as crypto don’t need to declare anything.

        • sjs

          It depends on the jurisdiction you live in and the frequency or intend when trading. If you trade and profit from it it will be deemed income and is taxable as such even if not converted into fiat.

    • Ricky Bickerton

      Why don’t people understand what is being said?
      They will NOT tax you on your bitcoin holdings. They will tax you on any FIAT that you acquire, whether that is from trading crypto’s or buttons. Once you exchange your profit for FIAT, the FIAT is then subject to capital gains tax. This is quite normal, just like some countries tax you on winnings from gambling etc. Its income in Fiat so it is subject to tax.

      • Frank Zeleniuk

        A consumption tax would be a tax added on your purchase of bitcoin. The measure would be in fiat, of course. Buy 2 bitcoin for a thousand dollars each at 5% tax and it adds $100 to the fiat cost.

        Capital gains is as you say.

        A fiat or decree that made bitcoin a legal tender would enable your taxes to be payable in bitcoin. If it is a legal tender it should not be taxed at either as a consumption tax or capital gains.

  • Lebanon

    Innovative unlike other countries.

  • I think there is 2 sides of the coin. Yes its a great thing tht Japan now recognizes Bitcoin as an asset class or currency. Its healthy for the overall btc ecosystem but the gvment is also smart in tkng advantage via other form of gains tax. Its ok i guess as its a win-win for both sides.

    • Ricky Bickerton

      They will not tax your bitcoin, they will only tax the FIAT that one accumulates from trading bitcoin, which is normal.

    • daymust2007

      At least it is a good News from Japan side. Win-WIn. Let the U.S keep forming too big and meticulous to accept their fate and recognize Bitcoin like their brother just did. U.S always think without them somethings can not be invented successfully. IMO

  • Luc Marcoux

    Ok, so say I was Japan, then I amended a law of taxation about bitcoin. Weather it is in favor or not, good for the community or not, it is still a form of regulation. This year 0% JCT, in 3yrs 1% JCT, 5yrs later 6% JCT, and it will be acceptable because their is a rule of no JCT right now. BTC lives without any rules, there is no need for this else to try in the future to capitalize on BTC. Very sad Japan…

    • Ricky Bickerton

      The Japanese gov know they cannot tax bitcoin, so they are making it very clear that they acknowledge this while also saving face, they are also be very clear that any FIAT profit derived from trading crypto’s will rightly be subject to income tax or capital gains tax. From what I read Japan are taking first steps to recognise bitcoin value and purpose and decentralised nature, without the government losing face or looking like they have worrying competition, IMHO no politician needs to worry about bitcoin really, as it will be quite some time before bitcoin starts to cause real problems for governments, by that time today’s politicians will already be set and they won’t really care.

  • Gisle Mikkelsen

    Wait a minute….. This isn’t an april fools right?

  • That’s a great initiative