South Korea seeks to grant startup benefits to crypto firms through reclassification

South Korea's Ministry of SMEs and Startups published a notice today stating its intention to amend the existing law on local startups to allow virtual asset trading and brokerage service providers to be registered as "venture companies," which would make them eligible for government benefits.

A "venture company" in South Korea refers to a small and medium-sized enterprise or a startup that has received an official "venture certification" from the government, qualifying it for specific benefits based on factors such as investment, R&D intensity, or technological appraisal.

The Special Act on Promoting Venture Businesses previously limited blockchain-based crypto asset trading and brokerage firms from earning that certification in 2018, placing it in the same category as pubs, nightclubs and gambling facilities.

Dunamu, the parent company of Upbit crypto exchange, faced an additional $18 million corporate tax burden in 2018 after its venture business designation and the corresponding government subsidies were revoked. The company filed a lawsuit to contest the tax but was unsuccessful.

The proposed amendment is expected to elevate the legitimacy of local crypto firms and make them eligible for government subsidies such as tax cuts and financial support. The amendment would also allow existing venture companies to pursue crypto-related businesses.

"The recognition of innovative, business-viable Virtual Asset Service Providers (VASPs) as venture companies … will revitalize and broaden the venture ecosystem and accelerate the growth of the virtual asset industry," the ministry wrote in its notice.

Pro-crypto moves

Such a move aligns with the latest initiatives from South Korea's pro-crypto President Lee Jae Myung, who was elected last month.

One of Lee's main initiatives, the institutionalization of Korean won-based stablecoins, is gaining momentum after a ruling party lawmaker spearheaded a new legislation on the subject shortly after Lee's election. Major payment services firms and banking institutions in the country have rushed to trademark stablecoin ticker symbols in recent weeks.

Lee also seeks to lift the existing ban on crypto exchange-traded funds, while the country's main financial regulator is separately working on gradually lifting its ban on institutional crypto trading.