The South Korean government has announced a 20% income tax on revenues generated from trading cryptocurrencies.
Following the meeting of the Tax Development Review Committee, on July 22, the Ministry of Economy and Finance published a revised tax code specifying new rules.
In the section entitled “Taxation of income from transactions on virtual assets”, the ministry introduced new rules, stating that now both virtual assets of natural persons (residents and non-residents) and foreign corporations are not taxed.
The government states that the introduction of taxation of virtual assets is now necessary, pointing to the approach taken by other countries where cryptocurrencies are already taxed under similar regimes for income from trading shares and derivatives.
What in the new crypto taxation rules?
Under the new framework, profits made on virtual currencies and intangible assets will be classified as taxable income, calculated annually. The minimum non-taxable threshold is income below 2.5 million won per year ($ 2,000)
Above the minimum, the tax rate is set at 20%, on par with the standard tax rate for most other taxable income and capital gains in South Korea.
These rules set out the guidelines for calculating the income earned from cryptocurrency transactions, which should be reported and paid annually in May of each year.
Non-residents and foreign companies trading on South Korean stock exchanges will also be subject to taxation: under the new rules, Korean exchanges will be responsible for deducting tax from profits from transactions and paying it to the Korean tax office.
The National Assembly will receive the revised tax code for approval before 3 September. The new rules, if approved by parliament, will enter into force on October 1, 2021.
New tax system
The South Korean government has spent many months finding ways to update the tax system in response to the virtual asset trade.
Discussions in the private sector in this country, as early as mid-July, seemed to indicate that in the case of capital gains in cryptocurrency, a tax of 20% will be introduced.
Lawmakers also discussed the classification of virtual assets as goods where transactions are made for the purpose of selling them. This is indicated by the court’s decision:
“Until now, virtual assets have only been considered a function of currency and are not subject to income tax, but recently virtual assets (like Bitcoin) are increasingly traded as goods with an asset value.”