The LLC-type DAO in Japan: accounting and tax
In April 2024 Japan made it practical to run a DAO through a godo kaisha — the Japanese LLC. This is a working guide to what actually changed, and to the accounting and tax consequences that get decided at the design stage, written by a certified public accountant.
- There is no “LLC-type DAO Act.” What changed was an amendment to the Cabinet Office Ordinance on Definitions under Article 2 of the Financial Instruments and Exchange Act (FIEA) — proposed 1 February 2024, promulgated 1 April, effective 22 April 2024.
- Where the requirements are met, a tokenised membership interest is carved out of “Electronically Recorded Transferable Rights” and treated as a Paragraph 2 (deemed) security. In practice this means self-offering without a Type II Financial Instruments Business registration.
- A godo kaisha is taxed as a corporation. There is no pass-through election of the kind US LLC founders expect. Plan for tax at the entity level and again on distribution.
What Changed
What was actually deregulated
Japan did not create a DAO entity. It lowered the regulatory weight on an existing one.
The godo kaisha (GK) — Japan’s equivalent of an LLC — has existed since 2006. What blocked DAO-style use was not the entity, it was securities regulation.
The ERTR problem
The FIEA splits securities into Paragraph 1 securities (shares, bonds — heavy disclosure, Type I business registration) and Paragraph 2, or deemed, securities (collective investment scheme interests and the like — comparatively lighter). A GK membership interest sits, traditionally, in the Paragraph 2 world.
The problem appeared the moment you tokenised it. A 2020 FIEA amendment created the category of Electronically Recorded Transferable Rights (ERTRs): Paragraph 2 rights that can be transferred electronically were deliberately promoted to Paragraph 1-equivalent treatment, on investor-protection grounds. Tokenise a membership interest naively and you landed there — which is why DAO-style token issuance in Japan was not realistic.
What the 2024 ordinance did
The amendment carves qualifying GK membership-interest tokens out of the ERTR category. Once carved out, they fall back to being ordinary Paragraph 2 deemed securities: self-offering no longer requires Type II registration, and the disclosure regime does not apply.
Note the precision here, because it matters: the token is still a security. The correct statement is not “tokens are unregulated,” it is “this is a security that, if structured to meet two tests, is handled under the lighter of the two regimes.”
The Tests
The two carve-out tests
| Test | Requirement | Purpose |
|---|---|---|
| Transfer restriction | Technical measures must be in place so that the token cannot be acquired by, or transferred to, anyone other than a managing member | Kill transferability at the protocol level, so the instrument cannot circulate like a security |
| Distribution cap | A holder must not receive distributions of profit or property exceeding the amount they contributed | Strip out the “investment product” character — no upside beyond capital returned |
In plain terms: a token you cannot freely resell, and which cannot pay you more than you put in. Encoding both in the smart contract is the starting point of any LLC-type DAO design.
The trap: a second token is judged separately
Teams frequently want a second token alongside the membership interest — a utility or community token. If that second token carries a right to receive distributions of profit or property from the GK, it may itself constitute a collective investment scheme interest under FIEA Article 2(2)(v), pulling offering and business regulation back in.
“We cleared the membership token, so the other one is fine” does not follow. Each token has to be assessed on the rights it actually carries.
Separately, clearing the registration question does not clear offering rules. Practitioners commonly work to a threshold around 499 / 500 solicitees when distinguishing private placement from public offering for Paragraph 2 securities — treat that as an orientation point, not a bright line, and check the specifics.
Vehicle
Choosing the vehicle
Work backwards from whether you distribute money.
| Item | LLC-type DAO (GK) | General incorporated association | Partnership / LPS |
|---|---|---|---|
| Legal personality | Yes | Yes | No |
| Distribution to members | Permitted | Not permitted — a provision granting rights to surplus or residual assets is void | Permitted |
| Capital | Members’ contributions | No capital contribution system (dues, donations, kikin fund) | Partners’ contributions |
| Taxation | Corporate tax on all income | If “non-profit type”: tax only on the 34 categories of profit-making business. Otherwise: all income | Pass-through |
| Suits | DAOs that distribute revenue | Community and public-goods DAOs that do not distribute | Fixed-term fund structures |
A general incorporated association cannot give members a right to surplus or residual assets, so it cannot be used for a DAO that returns profit to token holders. For governance-first communities it is the more natural vehicle — RULEMAKERS DAO itself is one. Note that “non-profit type” status is not automatic: it turns on the articles of incorporation and on a requirement that directors related by family and similar ties make up no more than one third of the board — a test small founding teams fail without noticing.
Tax
The part people get wrong
A godo kaisha is not a partnership
This is the single most common misunderstanding we encounter. “A DAO is like a partnership, so profit flows straight to participants and the entity isn’t taxed, right?” No. A GK is a corporation with legal personality, and corporate tax applies at the entity level first. The pass-through treatment available to nin’i kumiai partnerships, LLPs and LPSs does not apply, and there is no US-style check-the-box election.
So the structure to plan for is corporate tax at the entity, then tax again when value reaches members. Paying people salaries instead of distributions is not a clean way around this — it raises its own deductibility questions.
Issuing the token
What happens at issuance depends on what you are issuing. Issuing a membership-interest token as a capital contribution generally does not, in itself, trigger tax. Issuing or releasing a token that constitutes a crypto-asset is treated differently. Consumption tax also lands differently — taxable, exempt or out of scope — according to the token’s legal character.
The member’s side
For the individual putting money in, the questions are whether a receipt is a dividend or a profit-and-loss allocation, what income category applies to gains on disposal of a membership-interest token, and where the boundary with miscellaneous income from crypto-assets falls. Getting this wrong surfaces at filing time, as an assessment.
Accounting
Accounting
There is no DAO-specific accounting standard in Japan. You are doing ordinary GK accounting, with one genuinely new area layered on top: crypto-assets, governed by the Accounting Standards Board of Japan’s Practical Issues Task Force No. 38 on the accounting treatment of crypto-assets under the Payment Services Act.
On the capital side, the work is to represent contributions, the equity section, token issuance and eventual distributions faithfully — including how far distributable profit actually extends. On the asset side, the live question is year-end measurement of crypto-assets the DAO holds or has issued itself. The treatment of self-issued tokens still contains unsettled areas.
Expect book-tax differences. Accounting may mark an actively traded crypto-asset to market while tax, where the requirements are met, holds it at cost and recognises no unrealised gain. That divergence is reconciled through the tax return schedules, not by forcing the two to agree.
Crypto Tax
Crypto tax, and the “second act”
Before reform, an actively traded crypto-asset held by a corporation was marked to market at year end — self-issued or not — and unrealised gains entered taxable income. Tax fell due on gains no one had realised in cash. This was, correctly, identified as a reason to run Web3 businesses somewhere other than Japan.
| Category | Before reform | After FY2023 reform | After FY2024 reform |
|---|---|---|---|
| Self-issued, continuously held (requirements met) |
Marked to market — taxed | Excluded (cost method) | Excluded (cost method) |
| Third-party issued, continuously held (requirements met) |
Marked to market — taxed | Marked to market — taxed | Excluded (choice of cost or market method) |
| Everything else (short-term trading etc.) |
Marked to market — taxed | Marked to market — taxed | Marked to market — taxed |
Exclusion is not automatic on holding. It requires a continuing transfer restriction and, for third-party issued assets, notification so that the restriction is published through the certified payment services association. Where a choice of measurement method exists, the election has a filing deadline tied to the fiscal year of acquisition. In other words, this is decided by your token design, not by your accountant afterwards.
The second act: individual taxation
If the FY2023 and FY2024 reforms were about keeping corporates in Japan, what is moving now is about the individual investor. The long-standing complaint — crypto gains taxed as miscellaneous income at progressive rates reaching roughly 55% — has entered the statute book.
The Act partially amending the Income Tax Act and others was enacted and promulgated on 31 March 2026, providing for 20% separate self-assessment taxation on “specified crypto-assets”, together with a three-year loss carry-forward. Application is tied to the entry into force of the amended FIEA: bills migrating crypto-asset regulation from the Payment Services Act to the FIEA — and creating insider trading rules — were submitted to the Diet on 10 April 2026 and passed the House of Representatives on 11 June 2026.
Two cautions. The 20% rate attaches to “specified” crypto-assets, defined around transactions through registered operators — not to every asset or venue. And the start date follows the amended FIEA’s entry into force, so it is a moving target until that date is fixed.
Myths
Five common misconceptions
FAQ
Frequently asked questions
Q.What is an LLC-type DAO?
A DAO operated through a Japanese godo kaisha (LLC), with the membership interest issued as a token. It became a practical option after the amendment to the Cabinet Office Ordinance on Definitions under Article 2 of the FIEA took effect on 22 April 2024.
Q.Is there an “LLC-type DAO Act”?
No. The legal basis is an amendment to a Cabinet Office ordinance, not a standalone statute. The draft was published on 1 February 2024, the public comment period closed on 4 March, it was promulgated on 1 April and took effect on 22 April 2024.
Q.Do I need a financial instruments business registration to issue the token?
Where the two tests are met — technical transfer restriction, and no distribution exceeding the amount contributed — the token is carved out of Electronically Recorded Transferable Rights, and self-offering does not in principle require Type II Financial Instruments Business registration. Offering rules based on the number of solicitees still need to be considered separately.
Q.Is an LLC-type DAO taxed on a pass-through basis?
No. A godo kaisha is a corporation with legal personality and is subject to corporate tax. There is no equivalent of the US check-the-box election, so plan for tax at the entity level and again on distribution.
Q.Is there a DAO-specific accounting standard?
No. You apply ordinary corporate accounting. For crypto-assets, the ASBJ’s Practical Issues Task Force No. 38 is the base reference.
Q.Will crypto-assets we hold be marked to market at year end?
The FY2023 reform excluded self-issued, continuously held assets, and the FY2024 reform extended the exclusion to third-party issued assets held continuously where requirements are met. Short-term trading positions remain subject to mark-to-market. Exclusion requires a transfer restriction and, for third-party issued assets, notification for publication.
Q.I heard crypto will be taxed at 20% in Japan. From when?
The Act promulgated on 31 March 2026 provides for 20% separate self-assessment taxation on “specified crypto-assets” with a three-year loss carry-forward. Application follows the entry into force of the amended FIEA, so the start date is not yet fixed, and the scope is limited to “specified” assets rather than all crypto trading.
Q.Our DAO will not distribute profit. Is a GK still right?
Probably not. If you do not distribute, a general incorporated association is often the cleaner vehicle — though it cannot give members rights to surplus or residual assets, so it cannot be used where token holders are meant to receive returns.
Q.Can we issue a second, non-membership token?
You can, but if it carries a right to receive distributions of profit or property from the GK it may itself be a collective investment scheme interest under FIEA Article 2(2)(v), which brings offering and business regulation back into scope. Assess each token on the rights it carries.
Q.When should we bring in an accountant?
Before formation. The articles of incorporation, the choice of managing members and the rights attached to the token largely determine the accounting and tax outcome. After registration, your options have already narrowed.
Author
Author, sources and disclaimer
Auditor of RULEMAKERS DAO. Works across rule-making in the Web3 and blockchain field and the accounting and tax treatment of new organisational forms, including the LLC-type DAO. This page condenses a 16-part Japanese series; the full series, with worked detail on each point, is on the Japanese guide.
Principal sources
- Financial Services Agency — publication of the draft amendments to the Cabinet Office Ordinance on Definitions (1 February 2024)
- e-Gov — Financial Instruments and Exchange Act; Act on General Incorporated Associations and General Incorporated Foundations; Corporation Tax Act
- National Tax Agency — FAQ on the tax treatment of crypto-assets; outline of the FY2024 amendments to corporation tax legislation
- Ministry of Finance — FY2024 tax reform; Outline of the FY2026 Tax Reform (Cabinet decision, 26 December 2025)
- Accounting Standards Board of Japan — Practical Issues Task Force No. 38
More in Japanese
The underlying 16-part series covers each of these points in full, including journal-entry level detail. RULEMAKERS DAO is free to join and requires no cryptocurrency.