South Korea has been at the forefront of regulation in the cryptocurrency and fintech industries. Recently, the country passed a law that made trading in cryptocurrencies legial and recognized. The country’s lawmakers also have a history of pushing to impose taxes on cryptocurrency incomes from as early as 2021. With this background, South Korea’s Ministry of Economy and Finance suggested changing some elements in the current taxation laws. They wanted it to include the crypto industry.
The amendments, backed by the Ministry of Information and Technology, saw South Korea’s tax income generated from selling cryptocurrencies. However, trading between cryptocurrencies was not subject to taxation. An official from the Ministry of Information and Technology also commented. He explained that they were looking at different ways to tax if profits are made through trade, mining, and ICOs, following the principle of ‘tax where income is located. The official clarified that loss-making transactions would not be subjected to tariffs, just like in securities laws.
South Korea Passed A Bill Making Crypto Trading Legal.
In March 2020, the South Korean parliament passed a historic bill making crypto trading legal in the country. However, the bill took one and a half years to come into effect from the date of signing. Crypto-related businesses, such as exchanges, trusts, wallet companies, and token sales, were required to comply with new rules once the law came into effect. South Korea’s cryptocurrency businesses would need an information security management system (ISMS) certification.
A South Korean wallet provider Childly survey showed that 2/3 of crypto users favor cryptocurrency taxation. The independent study featured more than 5,750 crypto users worldwide, and only 1/5 crypto users were opposed to digital asset taxation.
Possible 20% Taxation On Crypto
South Korea is one of the biggest crypto economies in the world and has, as of yet, not imposed some form of taxation on the industry. However, this time trading absent taxes seems to end, as a 20% taxation is being considered. This is with positive opinions, within the Korean government. In short, this proposed legislation will consider (for the second time) the revenue earned from cryptocurrencies as “lottery or prize-winning” in this proposed legislation.
It has been some time since South Korea explained that cryptocurrencies were not liable to tax under the current legislation. Ever since, however, people have been waiting for the ball to drop. In particular, as to when the country will inevitably demand its share of profits. This expectation seems to close, with unexpected taxation of up to 20% looming.
Several anonymous sources from the government confirmed that the decision was made to re-evaluate the country’s views on crypto. In particular, the country’s people earn gains without sharing it with the government. In the past, crypto gains have been classified under the property tax department.
With these new sources, however, it seemed that the Korean government was not planning to keep it within the “capital gains” region of property law. Instead, it appears that the Korean government plans to categorize it under “other income.” In South Korea, Other Incomes allow for 20% taxation on 40% of the total. Thus, 60% remains fully tax-deductible.
This possible shift from “capital gains” to “other income” faces a growing government positive sentiment, according to the anonymous source that supplied the information. Without question, the crypto industry will not fall comfortably within the capital gains category of real estate. It would be appropriate to have crypto fall in its own category altogether, but that will not happen quickly. Instead, the crypto industry will likely shift to some other technical categorization.
In recent news related to this matter, South Korea’s National Tax Service (NTS) has Bithumb, with a massive taxation bill. Bithumb is one of the local exchanges of the country. Per the report, both Bithumb and the media have condemned the move as unjust. However, the new legislation brings a unique brand opportunity. Should this pass, the NTS can smack Bithumb with a fully legally accepted demand for taxation. Whether or not it would be as much, or even more, is still up for debate.
South Korea’s Financial Watchdog Wants To ‘Quickly’ Review Crypto Legislation
According to reports, the Financial Services Commission (FSC) will “make institutional support that will take a balanced approach to blockchain development. It will also improve investor protection and market stability” on bills proposed.
Per the FSC chair, the regulator plans to move fast in reviewing the 13 bills pending in South Korea’s National Assembly. This was regarding digital assets.
The FSC chair Kim Joo-hyun explained a task force made up of private experts and government ministers. According to an August report from South Korean news outlet, called Edaily, the task force will “quickly” review proposed legislation on cryptocurrencies.
In his address to the Digital Assets Committee, Kim said that the financial watchdog would “make institutional support that will take a balanced approach to blockchain development, investor protection, and market stability.”
Citing the official, “Even before legislation, we will introduce self-regulation efforts for the industry and do our best to protect investors,” said Kim. “Efforts are running internationally to stabilize the education system. They also want to reduce user protection risk without preventing technological development.”
The comments of the Financial Services Commission’s chair came after South Korea established a comprehensive structure on crypto by 2024 called the Digital Asset Basic Act. After the crash of Terra (LUNA– now called Terra Classic (LUNC) – many reports indicate that authorities in South Korea have enhanced investigations and enforcement efforts. Among the efforts include a plan to launch the Digital Assets Committee. This team will focus on offering protection and listing standards for investors. According to reports, South Korean prosecutors raided seven cryptocurrency exchanges in July.
Conclusion
Under President Yoon Suk-Yeol of South Korea, the country has become friendly to cryptocurrency. This is amid the recent market crash and the Terra crash issue. Do Kwon, the co-founder of Terraform Labs has reportedly faced legal scrutiny and calls to attend a parliamentary hearing on the matter.
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