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Under a recent set of tax legislation amendments, the South Korean government has announced plans to bring an end to the tax benefits crypto exchanges currently enjoy.
At the moment, bitcoin exchanges enjoy corporate and income tax deductions that apply to all small and medium-size enterprises (SMEs).
This will no longer be the case once the Revised Tax Law 2018 comes into effect. Additionally, the regulator has been contemplating the imposition of capital gain taxes on all cryptocurrency sales.
Published on Monday this week, the official government statement reads in part:
“From next year, virtual currency handling businesses will be excluded from the industries eligible for the tax reduction for SMEs.”
Up till now, crypto exchange platforms have been regarded as venture companies or SMEs in as far as taxation is concerned. As such, they have enjoyed significant deductions.
No Value Add from Crypto
Explaining the reason behind the move, the statement goes on to say:
“The cryptocurrency trading business lacks the effect of creating added value.”
The revision is pending submission to the National Assembly and if at all it passes, it is expected to come into effect next year.
A practical illustration of the huge impact this revised legislation will have on crypto businesses in the country can be seen from a case study of Bitsum Exchange.
Last year, the platform was estimated to have made a net profit of approximately $223 million. From this profit, it should have paid corporate tax of about $48.6 million. But since it qualified for a 50% reduction, tax savings amount to approximately $24.3 million.
However, the imposition of capital gains tax on cryptocurrency sales was not included in the amendment. According to the report this was because
“more research is needed”.
The proposal of taxation on digital currency profits has however been under consideration since last year.