Let us understand South Korean Classification through this write-up to understand the announcement of the financial authorities.

Key Highlights

• South Korea’s announcement about the governance of digital assets indicates its lead globally.
• The financial authorities of South Korea have ruled that NFTs or non-fungible tokens are subject to tax.
• The South Korean lawmakers intend to classify ETFs and NFTs.
• The nation works on the second section of the policy, addressing investor transparency and token issuance.
• South Korean Classification announcement was highlighted after the NFT’s classification as virtual assets.

South Korean Classification:  

The financial authorities recently announced a new regulatory framework on NFTs with the objective of classifying ETFs and NFTs.

The recent regulatory framework states that when an NFT loses its distinguishing characteristics from digital currencies, the FSC or the Financial Services Commission will classify it as a digital asset.

The treatment of NFTs with minimal or no utility will vary. It is applicable to electronic certificate NFTs or NFTs used in ticketing. These virtual currencies fall into the general NFTs category in these circumstances.

The New Regulatory Framework:

The recent South Korean regulatory framework was in place before the July 19th “Virtual Asset User Protection Act,” which seeks to provide more detailed rules and regulations for virtual assets.

The authorities have modified its criteria to demonstrate the categorization of non-fungible tokens as digital assets or cryptocurrencies. Also, the categorization pertains to NFTs that you can redeem for other digital currencies, divide into fractional portions,  transfer between anonymous parties, or pay for services or products.

The commission also established a guideline in 2023 that mentions considering NFTs as digital assets eligible to earn interest upon deposit to exchanges.

The Financial Service Commission’s Consideration:

The updated regulatory framework and recent guidelines also show that when the NFTs lose their unique qualities that set them apart from other digital currencies, they will be governed as cryptocurrencies.

Besides, when several identical or nearly identical NFTs are produced, lose their uniqueness, and are exchanged for money, the South Korean Financial Services Commission views the non-fungible currencies as digital assets.

The Financial Service Commission will categorize non-fungible tokens as general NFTs if they have restricted uses, such as limited quantities of concert tickets, are non-exchangeable, and are not utilized for commercial gain.

The Protection Rules:

South Korea is poised to take the lead globally once it develops the new regulatory policy. The new regulatory framework focuses on investor disclosure and token issuance. Legal requirements impose stringent user protection guidelines on Bitcoin service providers.

The recent South Korean law that the Finance Service Commission announced mandates that cryptocurrency service providers abide by stringent guidelines for safeguarding users. A minimum of eighty per cent of customer deposits must be kept in offline locations, secure, and insured to guard against security breaches.

Interesting facts: South Korean Classification

Regulatory innovation is necessary because NFTs are a novel class of electronic commodity that has the potential to expand the blockchain sector.

After assessing each non-fungible token collection separately, the Financial Services Commission may categorize virtual currencies as securities. However, it must satisfy the Capital Markets Act’s requirements.

NFTs with restricted applications are not tradable and one cannot used it for financial purposes. When people create NFTs in large quantities, divided, and use for payments, the Financial Services Commission of South Korea issues new guidelines classifying them as digital commodities.

When NFTs are manufactured in significant amounts, divisible, and utilized for payments, the Financial Services Commission of South Korea terms it as a digital commodity.

Conclusion:

The recent announcement by the South Korean Financial Service Commission states that large-scale non-fungible tokens production is classified as digital assets. Beginning in mid-July, South Korea will implement a cryptocurrency law protecting investors.

Stay tuned as the Finance Review will update more on the South Korean Classification shortly.