In South Korea, special taxation laws for small and medium-sized enterprises (SMEs) may no longer apply to cryptocurrency exchanges.
Previously, the Restriction of Special Taxation Act included tax reductions or exemptions for SMEs or venture businesses in the range of 50% to 100% of either income tax or corporate tax in the first five years. Afterwards, this range would be reduced to a range between 5% and 30%.
Tax law revisions
A new draft bill will be submitted to the National Assembly by the end of August 2018, after which it will be opened up to debate within the parliament prior to when or if the bill will be enacted into law. If it is approved, cryptocurrency exchanges will not be eligible to request tax reduction or exemption.
A recent report explains that the government is proposing a revision to the present tax law with the intention of excluding crypto exchanges from this special tax rate. The government explained its reasoning behind the move saying, “The virtual currency transaction brokerage was not effective in generating added value.”
Should the bill pass and be legislated into law, cryptocurrency exchanges will also be obligated to operate under a code of ethics that commercial banks in the country are required to follow, which includes practices such as transaction monitoring.
Cogs in motion
Under the revised laws, cryptocurrency exchanges would officially become financial institutions, which would cause them to fall under South Korea’s Financial Services Commission (FSC). In recent weeks, the FSC has been developing a new tax credit scheme designed specifically with “new-growth technologies” in mind, which includes blockchain technologies.
It comes shortly after the Korean National Assembly saw a whirlwind of political parties submit draft bills in a bid to create the necessary regulatory frameworks for initial coin offerings (ICOs), cryptocurrency and blockchain technology.
South Korea’s financial watchdog has also established a new governing body in preparation for the Fourth Industrial Revolution. As part of the FSC, a new entity named the Financial Innovation Bureau (FIB) will be working to provide “policy initiatives for financial innovation e.g. innovative financial services using fintech or big data and responses to new developments and challenges such as cryptocurrencies”.
Hong Seong-ki, head of the virtual currency response team for the Korean FSC has been pushing to have these bills prepared and passed with haste, urging lawmakers to do so in order to better protect consumer and investors.
South Korea is at a complete turning point, and could very soon be joining the likes of Malta with world-leading and clear laws and regulations.
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