South Korean Government Finalizes Levying 20% Tax on Income Derived From Cryptocurreny Trading

Detailing the new rules in its latest revision of the tax code, the South Korean government has decided to levy a flat 20% tax on income generated from cryptocurrency trading.

On Wednesday, July 22, during a Tax Development Review meeting, South Korea’s Ministry of Economy and Finance published the revised tax code that has a section named “Taxation on Virtual Asset Transaction Income”.

So far, crypto trading at personal or organizational levels has remained tax free in the country. However, the government now feels the need to introduce taxation on crypto profits. The South Korean government said that its actions are in line with the approach adopted by other strong economies.

The U.S. and some European countries already consider crypto profits under the “capital gains” and “other income”. The new taxation framework in South Korea includes income from virtual currencies as taxable.

However, all the gains below the minimum threshold of 2.5 million won per year ($2,000) won’t be taxed. But anything above the minimum threshold will attract 20% tax straight away. This percentage is at par with the capital gains tax and other taxable income in South Korea.

The rules that any income derived from crypto trading should be reported and paid annually in May. Other non-residents and foreign corporations that trade on the South Korean exchanges will also be taxed under the new rules.

In this case the Korean exchanges shall be responsible for deducting the tax from the transaction gains and shall pay it to the Korean customs office. The South Korean national assembly will receive this new tax code before September 3. If the new rules are approved by the parliament, they will come into effect next year onwards from October 1, 2021.

The South Korean government has spent considerable amount of time reviewing the possibilities of updating its tax regime. In one of the decisions, a court judgment noted: “Until now, virtual assets have been recognized only as a function of currency and have not been subject to income tax, but recently, virtual assets (like Bitcoin) are increasingly being traded as goods with property value.”

But not all industry players are happy with the latest decision to tax crypto gains. Speaking to the NY Times, Yonsei University economist Sung Tae-Yoon said: "The financial authorities should think twice before imposing taxes on the market, as the digital currency industry is still in its infancy. Any rash taxation or introduction of regulations can be a stumbling block for sustainable growth of the industry.”