This past August, the Ministry for Small and Medium Enterprises (SMEs) and Startups in South Korea delivered a proposal to the government. The proposal included a change to existing laws for the blockchain industry, as well as cryptocurrency exchanges, that would see entities in the spaces be permanently added to the government’s official list of certified venture firms.
Unfortunately for the industry, that proposal has now been shot down. Not only does it mean that the SMEs and startups won’t have access to financial incentives offered to other businesses, but it also means that blockchain-businesses could be on the hook for more taxes.
As it stands now, the majority of the exchanges in the country, including Upbit and Bithumb, are classified as venture firms. Toward the end of next year, however, this classification is set to expire, which can seriously hamper future growth of the industry in South Korea.
When the classification expires, crypto exchanges could see their income and corporate taxes increase by 100%. They would also no longer qualify for a 75% reduction in acquisition taxes and will not have access to any financial privileges, including 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,” asserts the government.
According to an earlier statement by blockchain and crypto lobby groups —including the Korea Blockchain Association, the Korea Blockchain Startup Association and the Korea Industry Promotion Association—“The measure will discourage the industry as a whole.”
Without the tax benefits, there will be little incentive for new players to enter the industry. Startups, and even established businesses, could ultimately pursue moving their operations abroad where the tax liabilities are not so heavy.
Upbit could already be looking to relocate. It opened an office in Singapore earlier this year and is expected to launch operations there in October. In the wake of the government’s denial of the proposal, it’s conceivable that the exchange will pack up and vacate the South Korean market completely. The exchange’s CEO, Sigroo Lee, said about the expansion a month ago, “We felt the timing was right to expand globally despite various uncertainties surrounding the Korean market.”