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In a shocking turn of events, South Korea’s National Tax Service (NTS) is planning to withhold tax from Bithumb, the largest crypto exchange in the country, on income from foreign clients.
This is the first time that the NTS has moved to withhold tax on income obtained from cryptocurrency transactions. There exists no law in the country that dictates taxation for income gained from digital currency trading, although there had been reports it is in the works.
Vident, one of the largest shareholders of Bithumb has issued a notice confirming that 80.3 billion won (almost $69.3 million) had been claimed by the NTS for taxation purposes. It also stated that Bithumb will pursue the matter through courts so that a final payment for taxation can be adjusted in the future.
For a country that has no defined standards to categorize crypto assets, the recent stunt by the NTS hints at the intentions of the South Korean government to introduce proper legislation dealing with matters regarding digital currency.
The amount of tax levied on the cryptocurrency exchange has raised eyebrows among financial analysts. It was also later revealed that the NTS had calculated the tax amount by categorizing the exchange’s earning from foreign clients as miscellaneous income rather than capital gains. This was confusing for many since generally all incomes are categorized as capital gains.
Categorizing Crypto Assets
One of the obvious benefits of declaring crypto exchange income as miscellaneous was that the taxation agency did not require all proof of payments and details of transactions to calculate the overall tax sum. This is not true for capital gains for which every record has to be sought before the final sum can be calculated. “It seems like the NTS took a practical approach in categorizing gains from crypto asset trading as miscellaneous assets,” affirmed Ahn Chang-nam, a taxation professor at Kangnam University.
The withholding tax rate for gains categorized as miscellaneous income in South Korea is 22 percent. This means that the the total income associated with foreign clients of Bithumb is almost $350 Million.
Recently, the South Korean government has stepped up its efforts to regularize the crypto industry in the country. Earlier this month, the Ministry of Economy and Finance said that it was planning on introducing legislation for taxation that would deal with crypto assets.
The move by the NTS to withhold funds from Bithumb is a step towards that kind of legal regularization. But without any clear basis for such withholding, it seems that Bithumb is not all in for a loss and might be even able to recover some of the money.