Get to know the New Royal Decree to Regulate Cryptocurrency and Digital Tokens

On the mid of May, two new 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 issues.

One of the Royal Decrees sets out the framework for offering, trading, brokering and exchanging digital currencies and digital tokens, while 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 centre, operation of a digital asset brokerage, and operation of a digital asset dealer, while 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 given by the Ministry of Finance, on the recommendation of the SEC.

Regarding 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 just after the prospectus has become active.

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 the possible insolvency of a digital asset trader.

A number of criminal penalties are provided for breach of specific provisions of the Royal Decree, which, depending on the offence, 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 500,000 baht).

Some offences also attract daily fines of up to THB 10,000, and some offences 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 offences.

Those business operators who 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 active (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, concerning digital tokens issued prior to the date of the Royal Decree, the issuer must apply to the SEC for approval, following SEC regulations.

The other Royal Decree addresses critical 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 requires withholding 15% on payment of such income.

Reference: Tilleke&Gibbins