The South Korean government has declared some major changes in their tax laws regarding cryptocurrency exchanges. According to the new proposed law, crypto exchanges will no longer get income tax or corporate tax reductions currently offered to small and medium-sized businesses. Moreover, authorities and regulators have also been considering imposing capital gains tax on the sale of cryptocurrencies.
Under the current tax exemption rules, income tax and corporation tax are reduced by 50% to 100% for five years for business startups, SMEs and venture companies.
from next year, virtual currency handling businesses will be excluded from the industries eligible for the tax reduction for SMEs [small and medium-sized enterprises].
According to the new law from next year, all the businesses that deal with cryptocurrency will no longer be eligible for the tax reduction. The crypto exchanges “have been considered as venture companies or small and medium-sized businesses for tax purposes until now,” allowing them to benefit from considerable income tax deduction. Citing other favorable tax treatments such as depreciation of assets acquired during the first four years. Under current laws, income and corporate taxes are reduced between 50 percent and 100 percent during the first five years of a startup’s lifecycle, SMEs, and venture companies. A recent scandal came up against another South Korean cryptocurrency exchange Upbit, where the exchange was accused of publishing false balance sheets for tax exemption. An audit was conducted but it found no irregularities.
Considering that virtual currency exchanges earned huge amounts of money in the last year and earlier this year, it is estimated that the amount of exemption would be considerably large,
According to a news outlet, the government has decided to exclude crypto exchanges from the list of entities eligible for SME tax deduction “because the cryptocurrency trading business lacks the effect of creating added value” but, the government may actually be looking to cash in on big revenue: according to Seoul Finance, crypto exchanges are currently paying as much as 22 percent. The revised tax law will be submitted to the National Assembly and, if the draft passes through review by the National Assembly, it will become law later this year
Bithumb exchange, which is estimated to have net profit of over 250 billion won [~US$223 million] last year, should pay 54.4 billion won [~$48.6 million] in corporate tax but it is expected to save 27.2 billion won [~$24.3 million] since it receives 50% reduction.x
Bithumb is a South Korean cryptocurrency exchange and one of the largest cryptocurrency exchanges in the world. Cryptocurrencies that are added to the exchange have a tendency to experience dramatic price increases as South Koreans snap up these newly available digital assets. Examples of currencies which have spiked in value after being added to Bithumb include Ripple and Monero. Other cryptos which are available for trading on the South Korean exchange include Bitcoin Cash, Ethereum Classic, Litecoin, and Dash. At times, Bithumb has accounted for more daily cryptocurrency trading than any other exchange. Around 75% of all Bitcoin trading volume in South Korea comes via Bithumb and around 50% of the trading is in Ethereum. Cryptocurrencies that are listed on Bithumb are paired against the Korean Won (KRW).
taxation on the sale of cryptocurrency was not included in the amendment bill based on the judgment that more research is needed, The government has been considering imposing capital gains tax virtual currency trading profits since early this year, but no specific taxation bill has come out.
This is the first of its kind administrative move made by the South Korean government since the South Korean Policy Advisory Council met in June to build up an administrative structure for domestic cryptocurrency exchange. As per the current regulations, there are clear restrictions in preventing tax evasion on crypto exchanges in light of the fact that experts can spot suspicious exchanges through banks. On the off chance that the bill, from administrator Jae Yoon-Kyung from the Democratic Party of Korea passes, law makers will have the capacity to force the same regulations on crypto exchanges that are implemented on commercial banks.