Officials in South Korea have announced their intention to tax crypto transactions to the tune of 20% starting next year.
Beginning in the 2022 tax year, stock and bond investors will be taxed on capital gains that are over 50 million won, or $45,000. Non-sales transfers of crypto asset ownership will also be subject to “statutory gift and inheritance tax rates” of up to 50%
Despite expected backlash and requests for a delay by South Korean investors, the taxation will move forward as planned. Many investors’ complaints are why crypto is being singled out and why these new taxation rates are not imposed on stock market transactions as well. While crypto investors are against the move, a study showed the citizens of South Korea in general support the new tax.
The plan was originally announced earlier in the year during a vice-ministerial interagency meeting. The meeting was overseen by the head of government policy coordination, Koo Yoon-Cheol.
Under the new regulations, gains from crypto transactions will now be deemed “miscellaneous income” and be subject to the new tax rate. Investors must report virtual asset gains, when filing income taxes in May 2023. Government officials have also made the call to extend its Financial Services Commission (FSC) efforts to clamp down on illegal or illicit activities in the crypto market, until the end of September.
So far, 676 people have been accused of tax evasion and saw their digital assets seized by Seoul authorities. In total, the group accounted for 27.8 trillion won ($25 billion) of South Korea’s tax gap. As part of the crackdown, crypto exchanges falling under South Korea’s jurisdiction will be required to share trade and transaction records.
Seoul’s crypto-tax plan has been in motion for months
While many South Korean digital investors are up in arms about the news, it should come as no surprise to them. Just last month, South Korea’s finance minister, Hong Nam-ki stated that the government would be moving forward with the taxation plan.
Hong also doubled down on his stance that virtual assets cannot be recognized as currency and that no one can ensure the currently traded market value of virtual assets. “When capital gains are generated from transactions of virtual assets, we cannot help imposing the tax to promote taxation equality,” Hong stated.
Under current Korean tax law, the government taxes profits from “intangible assets” such as trademark rights. Cryptocurrency assets are also labeled as intangible assets under global accounting regulations. Hong went on to say that digital currencies are mere virtual assets and, therefore, have zero intrinsic value.
The taxation is not the only move South Korean authorities have planned. The FSC is also planning to restrict crypto-adjacent business operators from making transactions using their companies. The idea is to mitigate the chances that price manipulation and unfair activities become larger issues than they already are. The FSC reports that the number of companies that fall under this restriction hovers around 60.