Japan vs South Korea：Cryptocurrency Policy Comparison

Japan and South Korea, as representative advanced economies in the Asian region, have different attitudes and policies towards cryptocurrencies.

I. Cryptocurrency Status in Japan and South Korea

In Japan, cryptocurrencies are recognized as legal payment methods. Since May 2016, Japan has accepted cryptocurrencies and other currencies as legally accepted payment methods. In April 2017, the Local Payment Services Act came into effect, reaffirming cryptocurrencies as a form of payment and outlining regulatory measures for cryptocurrency exchanges and ICOs.

The South Korean government does not currently consider cryptocurrencies as legal tender or recognize them as a payment method. Since 2017, all forms of token issuance have been banned. After the collapse of Terra in 2022, South Korea announced the establishment of the "Digital Assets Committee" to strengthen digital asset regulation and expedite cryptocurrency legislation. Currently, South Korea has implemented intensive cryptocurrency regulatory measures.

II. Cryptocurrency Taxation in Japan and South Korea

In Japan, cryptocurrencies are treated as assets, and their income is taxed as miscellaneous income based on the Payment Services Act (PSA) and the Financial Instruments and Exchange Act (FIEA). If the income from buying or selling cryptocurrencies exceeds 200,000 Japanese yen in the previous fiscal year, it is required to declare the total amount of cryptocurrencies and pay taxes accordingly. Japan implements a progressive tax rate system for income, including miscellaneous income. The tax rate varies from 5% to 45% based on individual income tax brackets. Additionally, a mandatory resident tax of 10% is applied to all tax rates. Therefore, the effective tax rate in Japan ranges from 15% to 55%, with individuals potentially paying up to 55% of their income as taxes.

South Korea's cryptocurrency taxation includes two types of taxes: capital gains tax, levied on profits from selling cryptocurrencies, and income tax, levied on cryptocurrency mining or trading activities. The tax rates depend on the income level and range from 6% to 42% across different brackets. However, if the profits obtained from cryptocurrency investments fall below a certain threshold, it may be exempt from any taxes. Additionally, if cryptocurrencies are held for more than a year, one may be eligible for tax reductions.

III. Japan's Regulatory Content and Framework for Cryptocurrency

The cryptocurrency industry in Japan is regulated by the Japanese Financial Services Agency (FSA), with relevant laws including the Payment Services Act and the Financial Instruments and Exchange Act. Amendments to these laws came into effect on May 1, 2020. Cryptocurrency exchanges in Japan are required to hold a license as a cryptocurrency asset service provider in order to offer cryptocurrency-related services to Japanese clients and investors.

Japan was the first country in the world to define cryptocurrencies in legal terms and one of the earliest to establish regulatory measures for cryptocurrency management. In 2015, the Japanese government proposed that all cryptocurrency exchanges should register and obtain licenses. Subsequently, in 2016, the country introduced the "Act on Prevention of Transfer of Criminal Proceeds," which also covered the trading and transfer of digital assets. From April 2017, the Payment Services Act became applicable to all cryptocurrency exchanges in Japan, requiring exchanges to register with the FSA, conduct compliance checks on customers, maintain relevant records, and strictly comply with anti-money laundering and counter-terrorism financing regulations. In 2020, the government strengthened the control of virtual currencies and enhanced the management framework for cryptocurrencies by establishing self-regulatory organizations, namely the Japan Virtual Currency Exchange Association (JVCEA) and the Japan STO Association.

IV. South Korea's Regulatory Content and Framework for Cryptocurrency

As the fourth largest economy in Asia, South Korea is one of the most active countries in the cryptocurrency market. Despite the high penetration of cryptocurrencies, South Korea has not yet included them in legal terms as Japan has done.

South Korea's regulations for protecting cryptocurrency investors include requirements for real-name verification, prohibiting minors (under 20 years old), and prohibiting foreigners residing outside of South Korea from opening accounts. However, regarding regulatory measures for cryptocurrencies, South Korea has only set provisions for significant violations, and there are gaps in related details. On June 1, 2022, the South Korean government announced the establishment of the "Digital Assets Committee," aiming to propose policy recommendations including standards for listing new cryptocurrencies on exchanges, a timetable for ICOs, and implementing investor protection before the enactment of the Digital Asset Basic Act (DABA). Additionally, on June 28, 2022, the Financial Supervisory Service of South Korea announced the establishment of the "Virtual Asset Risk Committee," with the purpose of proactively identifying potential risk factors in the virtual asset market and discussing relevant consumer protection measures.

V. Comparison of Cryptocurrency Industry Regulation in Japan and South Korea

In terms of regulatory stance, the Japanese government has always taken an open attitude towards cryptocurrencies. Japan became the first country to recognize Bitcoin as a legal payment method in April 2017. Since then, the Japanese government has been actively promoting the development of the cryptocurrency industry and has implemented a series of regulatory policies to protect investors and market stability. On the other hand, the South Korean government has had a relatively conservative attitude towards cryptocurrencies, especially towards the end of 2017 and the beginning of 2018 when it implemented a series of strict regulatory measures to restrict cryptocurrency trading and usage. However, recently, the South Korean government has also started actively promoting the development of the cryptocurrency industry and has established the "Virtual Asset Risk Committee" to formulate new regulatory policies.

In terms of regulatory content, both Japan and South Korea have strict regulations on cryptocurrency exchanges, requiring exchanges to obtain government-issued licenses to operate. Additionally, both governments require exchanges to take measures to protect investors, such as implementing Know Your Customer (KYC) and Anti-Money Laundering (AML) measures to ensure the legality and security of transactions. Furthermore, the Japanese government has implemented a series of regulatory measures to protect investors and maintain market stability, such as establishing secure trading systems and restricting leverage trading. On the other hand, the South Korean government has been more inclined to take measures to restrict cryptocurrency trading and usage, such as banning Initial Coin Offerings (ICOs) and limiting anonymous transactions. However, recently, the South Korean "Digital Assets Committee" has also started formulating regulatory measures to accelerate the development of the cryptocurrency industry.

Overall, cryptocurrency regulation in Japan is clear, strict, and focuses on guiding the industry rather than prohibiting its development. Most importantly, Japan has been committed to protecting retail investors and has been striving to fill legislative gaps in the cryptocurrency sector, enabling many cryptocurrency companies to have stable and continuous development. On the other hand, South Korea has historically imposed restrictions on cryptocurrencies, implementing intensive cryptocurrency regulatory measures. However, its attitude towards cryptocurrencies is currently undergoing a transformation. President Yoon Suk-yeol has promised to lift regulations on the cryptocurrency industry and has stated that "legal measures should be taken to confiscate profits from cryptocurrencies obtained through illegal means and return them to victims." The South Korean cryptocurrency market is gradually moving towards legalization.

Therefore, despite the slight differences in attitude and stance towards cryptocurrencies between Japan and South Korea, both countries are continuously improving cryptocurrency-related regulations and policies to ensure market stability and security. Currently, both markets are considered attractive destinations for cryptocurrency companies and enthusiasts.