South Korea to tax crypto income from next year

South Korea to tax crypto income from next year

By - min read
Updated 28 May 2020
South Korean flag and bitcoin

The country plans to make traders, miners and projects receiving initial coin offerings to pay income tax from March 2021

South Korea will tax cryptocurrency traders, miners, and initial coin offerings from next year, according to reports in local news outlets.

The Korean tax agency, working to regulations introduced by the Ministry of Economy and Finance, and Ministry of Science and ICT, will impose income tax on cryptocurrency sales and mining profits.

Local news outlet E Daily reports that the ministries are in the process of finalising amendments on the country’s Income Tax Act, with new clauses introduced to make the taxation of crypto mandatory as from 2021.

We are looking into ways to impose capital gains tax or other forms of income tax on the profits earned by both domestic and foreign investors using cryptocurrencies,” the outlet quoted one ministry official as saying.

An official at the Ministry of Information and Technology has said that the amendments to the taxation law target crypto transactions “where [an entity realizes] income.” The ministries are hoping the clauses will work like securities laws, where only profitable transactions will be taxed.

E Daily notes that “investors do not pay income tax in Korea even if they earn money through cryptocurrency trading such as Bitcoin.”

In 2017, the South Korean government reviewed its taxation law to include cryptocurrencies. However, the regulations were not enforced. According to the official, the amendments will be finalised by July, before being submitted to the country’s parliament in September.

Back in March, Korea’s National Assembly introduced the Special Act, which contains new crypto regulations expected to come into effect in March 2021.

According to the new law, crypto exchanges will have to record, store, and where required, provide authorities with the transaction details of its users. The exchanges will likely, therefore, have to report these details to the Financial Information Analysis Center (FIU), which works under South Korea’s Financial Services Commission (FSC).

In November last year, Korean tax authorities imposed an 80 billion KRW ( $64 million) tax bill on cryptocurrency exchange Bithumb. This followed an investigation into the transactions of the exchange’s overseas customers; Bithumb appealed the bill and the case is ongoing.

However, the government might be looking to impose the new tax law regardless of the case’s outcome. The US, Japan, Australia and Germany all levy income tax on crypto transactions. The US Internal Revenue Service (IRS) last year sent letters to over 10,000 cryptocurrency users regarding their filing of returns related to their crypto holdings.