In February, Bitcoin.com reported that the first Japanese bill containing digital currencies, recognizing Bitcoin as a method of payment, was expected to enter into force sometime in April. Last week, the Japanese Financial Services Agency (FSA) officially announced that the exact date for this bill to become law is April 1.
Also read: Countdown: Bitcoin Will Be a Legal Method of Payment in Japan in Two Months
Bitcoin Officially a Method of Payment
The bill recognizes Bitcoin as a method of payment but not currency. It has “asset-like values”, explains the largest bitcoin exchange by volume, Bitflyer. They are “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”, the exchange describes, adding that:
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.
Burden on Exchanges and their Customers
Along with making Bitcoin an officially recognized method of payment, the bill also imposes a number of requirements on bitcoin exchanges. They will be required to register with the Prime Minister and must meet a number of requirements.
For example, they must have a minimum capital of 10 million yen as well as a sufficient IT system for theft and loss prevention. They must also establish several systems and processes, such as employee training, internal rules, governance, and guidance for outsourcing.
The bill that will go into effect on April 1 also revises ‘the Act on Preventing of Transfer of Criminal Proceeds’. Bitcoin.com recently reported on how this affects bitcoin exchanges as well as their customers. To comply with the rules set forth in the bill, exchanges are introducing stricter know your customer (KYC) procedures.
Nikkei Asian Review reported on Wednesday that the bill “poses an accounting dilemma” for Japan’s early Bitcoin adopters. The current Japanese accounting standards do not address digital currencies so there is no guidance on how to report them properly for tax purposes.
Therefore, many people and companies simply leave their digital currency holdings off their books. Those who report them often mark their bitcoin holdings as “inventory” on their balance sheets. Issuers usually report them as a “liability”. However, the lack of standards means, “there is a risk that companies that hold virtual currency could turn out to have distorted valuations or that huge losses surface suddenly”, said Chikako Suzuki, a partner at Pricewaterhousecoopers Aarata. Nikkei Asian Review wrote:
The Accounting Standards Board of Japan decided Tuesday to begin consideration, expected to take six months, of a framework for treatment of virtual currency.
What do you think of the new Japanese bill to recognize Bitcoin? Let us know in the comments section below.
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