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15 May, 2018
On Sunday, May 13, two Royal Decrees were published in the Thai Government Gazette, addressing matters relevant to cryptocurrencies and digital tokens. These Royal Decrees clarify some longstanding questions about initial coin offerings (ICOs) and related matters.
One of the Royal Decrees sets out the framework for offering, trading, brokering, and exchanging digital currencies and digital tokens, whilst the other deals with some key tax issues.
The first Royal Decree—named the Royal Decree on Digital Asset Business—differentiates between cryptocurrency on the one hand and digital tokens on the other. It also defines “digital asset business” to include operation of a digital asset trading center, operation of a digital asset brokerage, and operation of a digital asset dealer, whilst also leaving room for the Securities and Exchange Commission (SEC) to designate additional categories of business to be regulated.
As expected, the Minister of Finance was granted the authority to administer the Royal Decree, with authority also granted to the SEC to address various relevant matters. Engagement in digital asset business now requires a license to be granted by the Ministry of Finance, on the recommendation of the SEC.
In terms of the offering of digital tokens, the Royal Decree takes an approach analogous to that of securities under the Securities and Exchange Act. Digital tokens must be offered for sale only according to conditions prescribed by the SEC, and only after the prospectus has become effective. Further, they must only be offered through a service provider operating a digital token offering system approved by the SEC. Even after approval is granted, the SEC has the authority to take action in the case of false, misleading, or incomplete information, etc.
The Royal Decree also sets out qualifications for those engaging in digital asset business, those offering digital tokens or operating a digital token offering system, and the respective directors and executives of each such business. There are also provisions to prevent unfair trading. Digital asset traders are now subject to requirements on segregation of customer assets, and there are provisions to protect investors in the event of possible insolvency of a digital asset trader.
A number of criminal penalties are provided for breach of certain provisions of the Royal Decree, which, depending on the offense, can be as high as up to two years in prison and/or a fine equal to double the value of the tokens (minimum fine of THB 500,000). Some offenses also attract daily fines of up to THB 10,000, and some offenses specify fines without reference to the value of the tokens, as high as THB 2,000,000, as well as imprisonment for up to ten years. The court can also order reimbursement of the amount received from committing the offense, prohibition of transacting in digital assets for up to five years, prohibition of an individual acting as a director or executive of a digital assets business for up to ten years, and reimbursement of the SEC’s expenses incurred in conducting an investigation. Civil penalties are also contemplated for some offenses.
Those business operators which are already engaging in digital assets business are required to apply for a license under the Royal Decree within 90 days after the Royal Decree becomes effective (i.e. by August 11, 2018). Once the application has been filed, such business operator is permitted to continue to operate until ordered to cease. Similarly, with respect to digital tokens issued prior to the date of the Royal Decree, the issuer must apply to the SEC for approval, in accordance with SEC regulations.
The other Royal Decree addresses key tax issues. In essence, it amends the section of the Revenue Code setting out categories of assessable income, as well as a section of the Revenue Code providing withholding obligations. It specifies that any share of profit or similar benefits obtained by holding or possession of digital tokens, as well as the benefits derived from the transfer of cryptocurrency or digital tokens, that exceeds the amount of investment, is regarded as assessable income. It imposes a requirement to withhold 15% on payment of such income.
For further information, please contact:
David Duncan, Tilleke & Gibbins
david.d@tilleke.com
