The relationship between U cards and tax matters may not be as simple as it seems.

The question from my friend might refer to the tax matters in Japan that I mentioned earlier. Indeed, using a U card can, to some extent, circumvent certain tax issues, but that is not the most fundamental or direct aspect.

First, we need to look at the question of Japanese taxes in two parts. If you are a native Japanese person, holding only a Japanese passport, and are a Japanese tax citizen, the exchanges you can use are primarily compliant with Japanese regulations, and these exchanges are required to pay taxes.

For example, if you buy one $BTC for fifty thousand dollars and then sell it for one hundred thousand dollars, even if you sell it for USDT, you will still have to pay taxes. It doesn’t matter whether you are holding USDT or yen; when you sell, the tax consideration arises, of course, the tax is not paid immediately and is reported once a year. Assuming you have no job and no deductions, for this transaction, you would need to pay around 23% tax. (In fact, the maximum tax rate is 55%)

So even if you use a U card for payment, it does not affect the taxes generated from your trades. However, if you, a pure Japanese person, exchanged yen for USDT, transferred the USDT to a DEX, bought a Bitcoin for fifty thousand dollars, and sold it for one hundred thousand dollars, your account would have increased from fifty thousand dollars to one hundred thousand dollars.

In essence, very few people would know about this, except for you. Of course, as a law-abiding citizen, paying taxes is a duty you should undertake, but this part of the funds is unknown to others. However, if you transfer this one hundred thousand dollars into a bank, whether in dollars or yen, it may trigger the bank's attention. If it’s discovered that you are evading taxes, then the issue could become quite serious.

At this point, if you have a U card and transfer your fifty thousand dollars from your wallet to spend using the U card, theoretically, you are not avoiding the 23% tax since the tax is incurred the moment you sell Bitcoin; it only depends on whether you report it. The U card does not solve tax issues but rather addresses your method of transferring funds in and out without KYC and AML.

The essence of the U card does not involve overly complex tax issues but resolves how you can utilize funds without going through KYC and AML.

Now, moving on to the second part, assuming you are not a native Japanese, and you hold a passport from outside Japan, let's say a Chinese passport, and you registered on a non-Japanese compliant exchange with this passport, even if you live in Japan, or have obtained residency and even become a Japanese tax citizen, you can still use this account for trading, even though it is not legal.

PS: At least currently, the exchange system is viable; the future is uncertain.

In this case, if all your trades are profitable, the Japanese system will not know about it, but the condition is that you cannot transfer this profit back to a Japanese bank. Small amounts may work, but large amounts, if noticed, will get you in trouble. And the trouble is not small.

Thus, the U card can solve part of the issues since living in Japan requires spending money on essentials. Of course, Japan also has some non-compliant OTC options that can help you exchange USDT for yen, but accessing banks can be quite complicated, so most transactions are done in cash.

In general, although the examples are based on Japan, the operations are similar for most countries or regions that require tax payments, which is why DEX and Perp Dex have markets. Indeed, in many areas, taxes can be quite high, prompting some individuals to seek alternative pathways.

The U card does not have an essential connection to taxes; in any region requiring cryptocurrency tax payments where you are a local tax resident, the obligation to pay taxes arises the moment you trade. The emergence of the U card merely addresses the issue of accessing funds without needing complex KYC and AML.

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