Response Speed Through TF
Crackdown on Illegal Virtual Asset Activities Until September
Taxation from Next Year's Income, Imposed Starting 2023
[Sejong=Asia Economy Reporters Kim Hyunjung, Jang Sehee] The government has begun dividing roles among various ministries regarding the cryptocurrency market, including Bitcoin. The Financial Services Commission will oversee market and exchange supervision, while the Ministry of Science and ICT will be the main ministry responsible for blockchain technology development and industry promotion.
On the afternoon of the 28th, the government held a vice ministerial meeting of related ministries at the Government Complex Seoul, chaired by Koo Yoon-cheol, Director of the Office for Government Policy Coordination, and announced the 'Virtual Asset Transaction Management Plan' with these details.
◆Role division finalized... Financial Services Commission to take charge of supervision= The Office for Government Policy Coordination first added the National Tax Service and the Korea Customs Service to the virtual asset-related ministries' task force to respond comprehensively to illegal activities and strengthen the management system by having relevant ministries handle their respective areas. In particular, the National Tax Service is preparing to implement the virtual asset taxation system and will pursue forced collection of virtual assets from high-value tax delinquents. The Korea Customs Service will crack down on violations of the Foreign Exchange Transactions Act, such as foreign exchange fraud using virtual assets.
The Financial Services Commission will lead the management, supervision, and institutional improvements for virtual asset service providers to enhance transaction transparency, while the Ministry of Science and ICT will lead blockchain technology development and industry promotion. In this process, the Financial Services Commission will strengthen related organizations and personnel.
The Ministry of Economy and Finance will be responsible for operating the support team, virtual asset taxation, and checking for violations of the Foreign Exchange Transactions Act. The prosecution and police will crack down on crimes such as fraud using virtual assets, and the Fair Trade Commission plans to conduct ex officio investigations into unfair terms and conditions of virtual asset service providers.
A support team consisting of the Ministry of Economy and Finance, Financial Services Commission, Ministry of Science and ICT, and the Office for Government Policy Coordination will be formed and operated under the task force. The head of the support team is Lee Eokwon, the first vice minister of the Ministry of Economy and Finance. If disputes arise between ministries, they will be discussed and coordinated within this support team.
◆Capital gains tax introduction plan on schedule... First implementation in May 2023= The government reaffirmed its existing position that capital gains tax will be reported and paid from May 2023 on profits from virtual asset trading occurring after next year.
Profits and losses from virtual asset transfers and exchanges over one year will be aggregated, and if there is a profit, it will be classified as other income and taxed separately at a 20% rate (with a basic deduction of 2.5 million KRW). The acquisition cost of virtual assets held before January 1, next year, will be based on the higher of the market price as of December 31, 2021, or the acquisition cost of the virtual asset. Non-residents or foreign corporations will have withholding tax collected by virtual asset service providers on income generated after the base date (January 1, next year) and paid to the tax authorities.
The government explained that "considering the taxation principle that income is taxable, income equity, and taxation trends in major overseas countries, taxation on virtual asset income is necessary," adding that "taxation on virtual asset capital gains is at a level similar to the taxation system for overseas and unlisted stocks." Furthermore, "taxation will be implemented based on measures to prevent participant damage, such as cracking down on illegal activities and enhancing transaction transparency (including amendments to the Act on Reporting and Using Specified Financial Transaction Information and its enforcement decree)."
The government plans to provide prior guidance to virtual asset service providers (such as submitting tax data) and build IT systems to avoid confusion caused by the tax implementation. Additionally, the virtual asset-related ministries' meeting (chaired by the Director of the Office for Government Policy Coordination) will be held regularly to continuously monitor the implementation status of tasks by each agency.
◆Special crackdown on illegal activities extended until September= The government decided to extend the 'Pan-government special crackdown on illegal activities,' originally scheduled until June, until September, considering the high possibility of illegal activities occurring during the grace period for business registration until September. During this period, illegal multi-level marketing, fraud, unauthorized fundraising, hacking, phishing, smishing, and other illegal activities will be intensively cracked down.
Additionally, to enhance transaction transparency, operators running exchanges will be prohibited from directly mediating or brokering trades or exchanges themselves.
Moreover, technical measures will be established, such as increasing the storage ratio of code wallets (wallets difficult to hack) to safely store virtual assets against hacking and other threats.
The Financial Services Commission has identified about 60 exchange operators so far, none of whom have yet submitted registration to the Financial Intelligence Unit, but 20 companies have obtained ISMS certification.
Among the certified exchanges operating real-name verified deposit and withdrawal accounts are ▲Dunamu Inc. (Upbit) ▲Bithumb Korea Co., Ltd. (Bithumb) ▲Korbit Co., Ltd. (Korbit) ▲Coinone Corp. (Coinone), totaling four. Other ISMS-certified companies include ▲Newlink Co., Ltd. (Cashierest) ▲Banko Co., Ltd. (Borabit) ▲Streamy Co., Ltd. (Gopax) ▲Apro Korea Co., Ltd. (Aprobit) ▲Exia Soft Co., Ltd. (Coinbit) ▲Oceans Co., Ltd. (Probit) ▲International Bit Exchange Co., Ltd. (iBitEX) ▲Childly Co., Ltd. (Pidulgi Wallet) ▲Coredax Co., Ltd. (Coredax) ▲Coenco Korea Co., Ltd. (Coinenco) ▲Ten and Ten Co., Ltd. (Ten and Ten) ▲Foblegate Co., Ltd. (Foblegate) ▲Plutos DS Co., Ltd. (Hanbitco) ▲Peertech Co., Ltd. (Gidac) ▲Korea Digital Exchange Co., Ltd. (Flybit) ▲Huobi Korea Co., Ltd. (Huobi Korea), totaling 16 companies.
However, the government emphasized that even if ISMS certification has been obtained and real-name verified deposit and withdrawal accounts have been opened, there is a possibility of rejection during the Financial Intelligence Unit's registration review process. For example, if the corporation, representative, or executives have been sentenced to a fine or higher under the Act on Reporting and Using Specified Financial Transaction Information, the Act on the Regulation and Punishment of Criminal Proceeds Concealment, the Act on the Prevention of Terrorist Financing, or related financial laws (refer to Article 10-12(3) of the Enforcement Decree of the Act on Reporting and Using Specified Financial Transaction Information), and five years have not passed since the execution or exemption of the sentence, the registration may be rejected.
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