South Korea currently has no regulations regarding bitcoin, even as the digital currency has gained immense popularity following its recent price spikes. Lawyer Kim Kyung Hwan outlines the six most important legal issues surrounding bitcoin in the country.
Also read: Why South Korean Bitcoin Adoption Could Outpace Most Other Countries This Year
Regulations Expected in the Near Future
Kim is a lawyer, patent attorney, and tax accountant in South Korea. He is also a member of the National Assembly Secretariat which provides support services to lawmakers such as legislative research and administrative supports. In 2015, he was selected by the Ministry of Commerce, Industry and Energy to receive the Industrial Technology Protection award by Korea Internet & Security Agency (KISA).
In an article published in Chosun on Friday, Kim noted how the rise in bitcoin’s price prompted more people in South Korea to get involved. However, the country does not have regulations for the cryptocurrency. This causes uncertainty and “a lot of trouble” for anyone making bitcoin transactions, he said, adding that:
It is expected that the regulations will be introduced [in South Korea] like Japan in the near future.
He then outlined six legal issues of digital currencies pertinent to South Korea.
Classification of Bitcoin, VAT, and Money-Laundering
The first and most fundamental legal issue is whether bitcoin is money, a security or an asset, Kim began. The South Korean Financial Services Commission has said they will propose a regulatory framework for Bitcoin-based businesses this year.
The Commission, the Ministry of Strategy and Finance, the Bank of Korea, the Financial Supervisory Service, academics and legal experts met in November last year. They started a debate about the legal definition of bitcoin, the exchange registration system, and anti-money laundering. However, no guidelines have been announced yet. Kim noted (loosely translated):
The National Tax Service in Korea interprets bitcoin as money and an asset but the FTC [Fair Trade Commission] interprets it as a good. This needs to be resolved through legislation.
The second issue is whether to impose VAT or consumption tax on bitcoin purchases. Kim cited countries where bitcoin is considered an asset impose VAT and “Korea belongs here as well,” he conveyed. “However, the international trend towards VAT is on the way to exemption,” he detailed, giving the example of Japan having revised its law to exempt bitcoin purchases from consumption tax.
Another issue he brought up is the need to overcome problems such as money laundering. “Korea considers digital currency as a commodity, and since telecom dealers are not obligated to prevent money laundering, there is no regulation yet,” he explained.
The fourth issue is whether digital currency businesses including exchanges need to register or notify any authorities. “A person who wants to conduct an exchange business now reports it as a telecommunications dealer under the Electronic Commerce Act. However, it can not be regarded as a regulation specific to virtual money,” he detailed. He then cited Japan’s new amended law to require bitcoin exchange businesses to register with the Prime Minister, be regularly audited and also be supervised by the Prime Minister.
Remittances using Bitcoin
The fifth issue concerns bitcoin remittances, when bitcoin is transferred and converted into won or other foreign currency. The current Foreign Exchange Transaction Act states that foreign exchange transfers including remittances can only be done through a financial company. “According to the interpretation of the Ministry of Strategy and Finance, it is important to note that many bitcoin providers may be in violation of the Foreign Exchange Transactions Act,” Kim explained.
However, starting on July 18, the law allows small-scale foreign exchange transactions for non-financial companies. This will significantly improve remittances in the country as the traditional banking practice is expensive and cumbersome, he indicated. Bitcoin.com recently reported on a leading mobile commerce company, Omnitel, which started a bitcoin remittance business in order to lower the cost of remittances as well as the time taken.
The last issue Kim mentioned concerns Initial Coin Offerings (ICOs) which have gained popularity lately. “There are similar schemes such as IPOs (initial public offerings) or crowdfunding in the capital market in Korea, but they are clearly different,” he explained. The issue also needs to be addressed as well.
When do you think South Korea will catch up to Japan’s regulations on bitcoin? Let us know in the comments section below.
Images courtesy of Shutterstock and Korean Financial Services Commission
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Source: News Bitcoin