South korea finalises crypto tax

South korea finalises crypto tax

By Benson Toti - min read

An annual income above 2.5 million won (around $2,000) from crypto trading will be subject to a 20% tax. 

The South Korean Ministry of Economy and Finance has formally finalised its plans to charge a 20% tax on income generated from cryptocurrency transactions. The amendments were conducted today, stipulating that an annual income of more than 2.5 million won (approximately $2,000) from crypto trading will be subject to a 20% tax.

Below this income bracket, there will be no charge.

The ministry has also finalised its classification of crypto gains as “other income” for tax purposes.

The revised tax code is still subject to parliamentary approval. The ministry will submit the code to the National Assembly before September 3rd of this year. If approved, the amendments will come into effect from October 1st, 2021.

South Korea has been discussing the possibility of implementing taxes on income derived from cryptocurrencies for six months.

Prior to this amendment, the country’s legislation placed a 20% tax rate on 40% of other total income, while the remaining 60% can be tax deductible. Digital currencies are also taxed under different brackets, with rates that go up to 42% under capital gains.

This is certainly a step forward for the normalisation of cryptocurrencies. Many governments in developed economies treat returns made on crypto as a form of capital gains. This is a tax that is placed on the difference when a sale price exceeds that of the purchase price.

In the US, the internal revenue service (IRS) issued guidance last October 2019 that placed cryptocurrencies as a form of property, even when they are received as a form of income. Taxes can go beyond 39% if the cryptocurrency is held for less than a year, depending on an individual’s income bracket.

The UK treats cryptocurrencies as commodities, and holders must pay a 20% tax on disposals that exceed £12,000 (approximately $15,600) in the tax year.

In Japan, cryptocurrencies are treated as a form of miscellaneous income with tax brackets of up to 55%.

As of writing, amendments to South Korea’s crypto tax do not include profits generated by initial coin offerings (ICOs). EDaily, a local newspaper, previously published that the ministry also covered the profits generated by ICOs.

The South Korean government began exploring the idea of taxing cryptocurrencies in 2017. However, it did not take the necessary steps to enforce it and the government had to deal with mixed opinions among the ministries as to whether cryptocurrencies should be viewed as an asset.