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South Korean Parliament Postpones New Law on 20% Tax on Transactions with Crypto

27 November 2020 09:06, UTC
Denis Goncharenko

South Korea's parliament has postponed the entry into force of a new law on income tax from cryptocurrency transactions. The law on 20% tax on income derived from transactions with cryptocurrencies will come into force on January 1, 2022. The law was originally supposed to come into force on October 1, 2021.

Parliament has postponed the deadline to give cryptocurrency exchanges time to prepare for the inclusion in their infrastructure of solutions that will implement the requirements of the law. The new tax structure was announced in July this year. The annual income of more than 2.5 million won ($2,260) from crypto trading will be taxed 20% for residents. Income less than this amount is tax-free.

The Korean Blockchain Association, an association of cryptocurrency companies in South Korea, criticized the timing of the transition to the new legislation and requested a postponement until January 1, 2023. Parliament agreed to extend the term by three months, not 15 months. Previously, digital assets in South Korea were considered currencies and taxed. Once the new legislation is introduced, virtual assets will be classified as goods for sale.

The legal framework of crypto in South Korea

The South Korean parliament approved legislative amendments in March that could lead to a radical restructuring of cryptocurrency trading in the country.

According to Asian media, the National Assembly of South Korea adopted important legislative amendments, officially recognizing the legality of cryptocurrency trading in the country. Its inclusion in the state legal field should lead to a deep restructuring of the entire Korean crypto industry and, in particular, the segment of cryptocurrency exchanges.

The bitter taste of freedom

The legalization of cryptocurrency trading certainly has its price. All service providers in the digital asset industry will now have to adhere to a number of mandatory conditions.

26-08-2019 11:34:43  |   Regulation
These include, for example, the requirement to comply with strict financial statements, as well as to use only trading accounts with real customer names on exchanges. To ensure the effectiveness of KYC procedures, crypto exchanges will have to cooperate with Korean banks and check with real names to which users' bank accounts are opened.

The purpose of these measures is to combat the authorities with various schemes of anonymous money laundering with the help of cryptocurrencies. The Korean authorities are not alone in this quest — similar trends are now observed around the world. Crypto service providers may receive a fine of 50 million won or even imprisonment for up to five years for violating the new requirements. In addition, they will be denied further access to the market.

Currently, only four major Korean crypto exchanges — Upbit, Bithumb, Coinone, and Cobit — adhere to the KYC procedure. Meanwhile, smaller platforms may have big difficulty trying to cooperate with traditional banks. Potentially, this can significantly reduce the number of players in the crypto exchange segment. However, they have plenty of time to change. The law will come into force only a year later, in March 2021, and after that, the authorities will give the participants of the crypto industry another six months for the necessary correction to meet the new requirements of the legislation.

Korea's blockchain is in full swing

Despite the tightening of demands and a blow to anonymity, many members of the crypto community still welcomed the news with enthusiasm. They believe that the introduction of cryptocurrencies into the legal field will give the industry a much-needed halo of mainstream and reliability and will help to intensify the mass adoption of digital assets.