South Korea’s National Assembly enacted a significant amendment to the Income Tax Act. It brought notable changes to the country’s taxation policies on financial investments and virtual assets.
The revision passed during a plenary session on Tuesday and received overwhelming support. Specifically, 204 votes were in favor, 33 were against, and 38 were abstentions from the 275 lawmakers present.
Abolition of Financial Investment Income Tax
The amendment’s highlight is the abolition of the Financial Investment Income Tax (FIT). This move presents a potential boost for market confidence. Previously, FIT would have imposed a 20-25% tax on annual earnings exceeding 50 million won (approximately $35,000) from investments in stocks, bonds, funds, and derivatives.
According to local media, supporters of the change, including Democratic Party leader Lee Jae-myung. Reportedly, he argued that eliminating the tax would reduce the financial burden on investors and encourage domestic market activity. However, some lawmakers expressed reservations.
“There is no objective evidence that the investment tax would negatively impact the stock market. This decision may inadvertently encourage high-risk investments, especially among younger investors,” local media reported, citing Rep. Cha Gyu-geun of the Democratic Party.
While the Income Tax Act revision passed, a proposed amendment to the Inheritance and Gift Tax Act faced defeat. The proposal sought to lower the top inheritance tax rate from 50% to 40%. It also looked to raise the minimum threshold for taxation.
However, it was rejected by 180 out of 281 lawmakers. Critics argued that the changes would disproportionately benefit high-income groups and exacerbate inequality.
The abolition of FIT and the deferment of virtual asset taxation demonstrate South Korea’s efforts to balance market stimulation and regulation. However, the rejection of inheritance tax reforms highlights ongoing political divisions regarding wealth redistribution. As global crypto taxation policies evolve, South Korea’s moves may influence its position in the competitive international financial space.
Virtual Asset Tax Deferred Amid Global Crypto Taxation Trends
Further, the implementation of a 20% tax on virtual asset income exceeding 2.5 million won ($1,750) annually, originally set to begin on January 1, 2025, has been deferred to January 1, 2027. The decision grants regulators more time to address industry concerns and streamline preparations for effective enforcement.
Virtual asset advocates lauded the postponement, seeing it as an opportunity to align South Korea’s tax framework with evolving global crypto trends.
“This is a chance for South Korea to adapt to international standards and establish itself as a hub for digital assets,” local media reported, citing a representative from the Korea Blockchain Association.
South Korea’s decision to delay virtual asset taxation mirrors broader global developments. Nations are reevaluating their approaches to crypto taxation.
For instance, the Czech Republic recently proposed exempting small-scale crypto transactions of up to 2,000 euros ($2,100) from taxation. This move aims to encourage the use of cryptocurrencies in everyday transactions.
Similarly, amid expanding cryptocurrency regulations, Russia is revising its crypto taxation bill to bring clarity and structure to its tax regime. These changes are expected to include simplified tax reporting for individuals.
In the same way, the Italian government has proposed reducing its crypto tax rate from 42% to 28% for gains exceeding 2,000 euros. Taken together, these moves signal efforts to attract crypto investors and promote regulatory compliance.
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