SOUTH KOREA Law and Practice Contributed by: Wooyoung Choi, Suhhee Han, Seonghwan Ju and Matt Younghoon Mok, Lee & Ko
1.2.6 Industry and Trade Bodies In Korea, the primary self-regulatory body for the vir- tual asset industry is the DAXA. DAXA was established by the five major Korean won-based virtual asset exchanges – Upbit, Bithumb, Coinone, Korbit, and Gopax – with the objective of promoting sound mar- ket order and protecting investors in the virtual asset sector. DAXA plays a key role in establishing indus- try standards, including the development of standard internal control guidelines for VASPs, listing support guidelines, real-time monitoring rules for abnormal transactions, best practice standards for advertising and promotional activities, and compliance manuals. In addition, the Digital Asset Protection Foundation (DAPF), which was funded by DAXA and established with authorisation from the FSC, is engaged in safe- guarding users’ virtual assets by receiving, securely storing, and returning such assets from or on behalf of VASPs that have ceased or are expected to cease operations, with the aim of establishing a sound trad- ing order in the virtual asset market and protecting users’ rights and interests. 2. Regulation 2.1 Regulators and International Alignment In relation to virtual assets, the FSC, the Korea Finan- cial Intelligence Unit (KoFIU), and the Financial Super- visory Service (FSS) each perform distinct regulatory functions. • FSC: responsible for establishing national policies related to blockchain technology and virtual assets. • FSS: through its dedicated departments for vir- tual asset supervision and investigation, the FSS conducts inspections and supervisory activities of financial institutions and enforces sanctions against unfair trading practices involving virtual assets, thereby ensuring effective market oversight. • KoFIU: as an agency under the FSC, KoFIU oper- ates the AML system and works to prevent money laundering and terrorist financing. It is also respon- sible for the registration and reporting of VASPs and plays a key role in preventing criminal activities involving blockchain and virtual assets.
tion threshold), no income tax is imposed (Article 84 (iii) of the ITA). For non-residents and foreign corporations, income generated from the transfer or lending of virtual assets in Korea is treated as Korea-source “other income” and is subject to taxation under Article 119 (xii)(k) of the ITA and Article 93 (x) of the CTA. If the non-resident or foreign corporation is a resident of a country that has concluded a tax treaty with Korea, it may apply for exemption or non-taxation by submitting a tax exemp- tion application to the VASP, in accordance with Arti- cle 156-2 of the ITA and Article 98-4 of the CTA. However, given the delay in the DABA legilsation and arguments from political circles for a further postpone- ment of taxation on the grounds of fairness with the non-taxation of gains from stock investments, the possibility of another deferral of the taxation regime cannot be ruled out. 1.2.5 Insolvency In Korea, there are no separate laws governing the liquidation or insolvency of VASPs. Accordingly, gen- eral corporate liquidation and bankruptcy procedures under the Commercial Act and the Debtor Rehabilita- tion and Bankruptcy Act apply equally to VASPs. However, the Act on the Protection of Virtual Asset Users imposes specific requirements designed to protect users’ assets. In particular, VASPs must seg- regate fiat funds received from users in connection with virtual asset transactions (including sales, bro- kerage, and other business activities) from their own assets and deposit or entrust such funds to finan- cial institutions such as banks for safekeeping. In the event that a VASP is declared bankrupt or resolves to dissolve, the Act provides that users are entitled to priority repayment of their deposited funds upon request (Article 6). In addition, the FSC has issued guidelines on proce- dures that VASPs must follow when ceasing business operations, with the objective of ensuring adequate protection of users during an orderly business closure.
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