The South Korean Regulator Deprived The Crypto of Tax Benefits
RegulationBit News Today2 min read
South Korea decided to bar cryptocurrency trading and brokerage firms from venture company certification, a measure industry groups warned would cripple the domestic sector.
Venture certification, which remains open to other blockchain segments like game and software development, previously granted crypto platforms substantial tax relief and government support.
The country's Ministry of SMEs and Startups (MSS) announced its intention to exclude the status of startups trading and brokering in cryptocurrencies. It argued in government notices that crypto trading is not eligible to be considered a venture company. Ministry official Song Je-hoon addressed the regulatory revision, under which nine blockchain subcategories retain venture eligibility while crypto asset trading and brokerage is excluded.
Song said the revision would appear in the government gazette within a week, noting that six of the seven certified exchanges had previously renewed their certification. Existing firms with certification that has expired after two years will not be able to receive benefits going forward.
MSS confirmed that the impact was primarily tied to tax exemptions, which some crypto firms have used to save corporate taxes. Yonhap News reported that cryptocurrency exchanges will lose corporate tax deductions of up to 50 percent, which they had received under ambiguous sector classifications despite earning large profits from speculative trading and experiencing security breaches. It further noted South Korea alongside Japan as examples of pioneering states in this sector, particularly regarding crypto exchanges.
Despite assurances, crypto companies and investors express concern about the move
Industry associations warned that this measure will cripple the entire sector after changes to national tax policies.
Industry representatives pushed back against the regulatory decision, warning that refusing venture certification to cryptocurrency exchanges would inevitably hurt initial coin offering firms.
Reports in August 2018 showed that Bithumb made a profit of $35 million in the third quarter of 2018 after generating a $400 million profit in 2017. Upbit and Bithumb were said to have handled close to $30 billion in annual volume each, profiting from brokerage fees.
According to Business Korea, domestic exchanges will see their corporate and income tax burdens double and will lose a 75 percent acquisition tax exemption. However, Doo Wan Nam, an analyst from GIFTO Blockchain, said top crypto exchanges would continue to earn huge revenues, showing strength for the crypto business in a bear market.
Alongside Japan, South Korea has been a pioneering nation in the industry, particularly in the exchange sector. Industry representatives rejected government assertions that initial coin offerings would remain unaffected, arguing that excluding exchanges from venture status would inevitably harm ICO enterprises.
