The Financial Services Agency (FSA) of Japan is striving to facilitate the advancement of decentralized autonomous organizations (DAOs) while bringing clarity to the legal framework governing them.
In pursuit of this goal, the FSA has put forward a new amendment to redefine Article 2 of the Financial Instruments and Exchange Act. This initiative aims to provide clear guidelines on the legal status, operational protocols, member obligations, ownership structure, and tax implications of DAOs.
The proposed amendment, titled the “Cabinet Office Ordinance (Draft) Amending Part of the Cabinet Office Ordinance Concerning the Definitions Provided in Article 2 of the Financial Instruments and Exchange Act,” seeks to ensure that a particular token known as the “Limited Company Type DAO Employee Rights Token” receives equivalent treatment to standard limited liability company (LLC) member rights.
Through this adjustment, the FSA aims to relax regulations regarding employee rights within tokenized LLCs and streamline the functioning of DAOs.
Public feedback on the proposed amendment is invited by the FSA until March 4th.
Empowered by blockchain technology and communication platforms, DAOs have surfaced as a method of community governance.
Nevertheless, the absence of a distinct legal standing presents uncertainties regarding potential legal ramifications and obstructs the seamless establishment and functioning of DAOs.
Moreover, establishing a clearly defined legal status is thought to bolster trust and ease transactions for DAOs in their external engagements.
Although the creation of new legislation tailored to DAOs requires significant time, leveraging existing legal structures provides a pragmatic avenue to elucidate their legal standing and encourage their adoption, as per the report.
Japan hosted a “DAO Rulemaking Hackathon” as part of its efforts to establish a legal framework for limited liability company-type DAOs. The event, organized by the Liberal Democratic Party’s Digital Society Promotion Headquarters and the web3 project team, took place towards the end of the previous year.
During the hackathon, various issues and requests were gathered from numerous companies, organizations, and investors. These inputs were then compiled into recommendations and submitted to the Minister of Finance, according to the report.
Additionally, last year, Japan’s National Tax Agency announced revisions to its laws, exempting crypto token issuers from 30% corporate taxes on unrealized gains, effective from June 20. Prime Minister Fumio Kishida stated that this move was aimed at fostering growth in the blockchain and crypto sectors, aligning with the vision of “new capitalism.”
Despite these changes, crypto investors remain subject to a maximum 55% income tax on earnings exceeding JPY200,000 ($1,797) related to cryptocurrency, categorized as “miscellaneous income.”
