Korean Government Brings the Hammer Down on Bithumb, Taxing The Crypto Exchange $68 Million
- Bithumb has been hit with an additional tax of 80 billion won ($63 million) by the IRS
- The tax was imposed on income tax withholding for foreign users using the platform
- However, there is no taxation policy related to cryptocurrency in the country
The Internal Revenue Service has imposed an obligation on cryptocurrency exchange Bithumb to “withhold withholding” on income from cryptocurrency transactions by foreign users, reported local sources.
As per this, Bithumb has to pay about 80 billion won, about $68 million in income tax on behalf of its foreign users.
The exchange has to pay its taxes first and can then ask its foreign users to pay taxes for their previous trades to the exchange. However, given that these foreign users might be based out of South Korea, it's really isn’t possible.
Bithumb in response is planning to take legal action against the National Tax Service request. However, the concern here is that there is no exact taxation system related to cryptocurrency in the country yet.
No Income Tax Policy on Crypto Transactions
The government has decided to set a tax policy on income tax on cryptocurrency transactions next year. The government plans to include the tax measures in the tax law revision to be announced in August 2020.
For now though there are no laws or specific guidelines laid down. Nonetheless, the IRS currently classifies cryptocurrency income as other income and not capital gains.
And before the government issued “emergency measures for overheating virtual currency speculation” and “prohibited the opening and trading of cryptocurrency accounts for minors and foreigners altogether,” foreigners were free to use the domestic Korean exchanges.
As such, the IRS assumes all foreigners’ withdrawals are taxable and Withholding tax on other income is 22%.
A Bad Time for Korean Exchanges
It is certainly a bad time for exchanges, especially for Bithumb who suffered a loss of $180 million in 2019.
It is one of the top four exchanges other than Upbit, Coinone, and Korbit that offer Korean Won (KRW) on and off-ramps.
Bithumb used to be the number one crypto exchange in Korea but after hacking by North Korea, wash trading, and failed acquisition attempt by a consortium struck a bad blow to its reputation. The exchange has already cut down its staff by 40%.
Bithumb used to be #1 in Korea, but has seen its reputation locally take a hit.
Failed acquisition attempt by a consortium (This didn't go through contrary to popular belief), Hackings by North Korea, Wash Trading, and a willingness to list anything and everything.
— Anthony Yoon | 윤승현 (@anthonysyoon) December 27, 2019
This move by the government, @DooWanNam of MakerDAO says could be,
In addition, as many other Korean exchanges also supported non-Korean users, this kind of tax might be imposed on other Korean exchanges as well. This might be a move by the government to warn other exchanges as well as potential upcoming exchanges
— Doo|MakerDAO|Asia BD (@DooWanNam) December 28, 2019