First proposed by South Korea’s Ministry for Small and Medium Enterprises (SMEs) and Startups in August, the revision to the law called for Korea’s domestic blockchain industry, including cryptocurrency exchanges, to be removed from the government’s official classified list of certified venture firms. In a blow to the industry, the government of South Korea has stuck with its legislative proposal to exclude the cryptocurrency and blockchain industry from being certified as venture firms.
As Cryptoworld news reported at the time, the enactment of the proposal would mean that cryptocurrency startups and exchange platforms will join businesses from the gambling, bar and entertainment industry. Quite simply, the sector would thereby lose tax perks and other financial incentives afforded to domestic startups and small businesses.
Presently, a number of major Korean exchanges some of the biggest in the world including UPbit and Bithumb – remain certified as venture firms but that recognition is set to expire near the end of the year. “The measure will discourage the industry as a whole,” lobby groups including the Korea Blockchain Association, Korea Industry Promotion Association and the Korea Blockchain Startup Association warned at the time, voicing their obvious displeasure at the proposed revision to the law.
As reported by Business Korea this week, the South Korean government has agreed upon the proposal with its legislation in the National Assembly.
The policy, according to the report, will see cryptocurrency exchanges face the burden of their corporate and income taxes doubling while they will no longer benefit from a 75% cut in acquisition taxes. Further, cryptocurrency exchanges will no longer have any privileges such as credit guarantees.
“Under the new government policy, cryptocurrency exchanges that will be newly set up this month or later cannot be certified as venture firms,” the report added, painting a bleak forecast for new startups entering the space. The lack of tax benefits is certain to discourage research and development within the industry which could seek to move their base of operations to friendlier jurisdictions abroad.
For instance, Korean exchange Upbit made a notable expansion to Singapore in its first international foray earlier this year with operations to commence this month. Launched a year ago by Dunamu, an affiliate of Korea’s largest messaging platform Kakao, with support for over 100 cryptocurrencies at launch, chief executive Sigroo Lee had a telling explanation for the company’s expansion beyond South Korea.