Any profits over 2.5 million won ($2,250) made from cryptocurrency trading will be taxed starting in 2022
The South Korean Ministry of Economy and Finance has announced it will be implementing a tax on cryptocurrency trading, according to a report published in The Korea Herald yesterday.
Starting from next year, investors will have to pay a 20% tax on any profits they make over 2.5 million won ($2,250).
Cryptocurrencies have seen a rise in popularity in South Korea recently, with local exchange Bithumb experiencing an increase in new registrations of 760% last year. K Bank, Shinhan Bank and NH Nonghyup Bank also saw a rise in the number of new accounts created to trade cryptocurrencies from 1.08 million at the start of 2020 to 1.4 million last month.
As such, the National Assembly revised the tax code in December as part of the government’s efforts to set up a firm regulatory framework around cryptocurrencies. These also incorporate a change to the Specific Financial Transactions Act, which will mean that from March, cryptocurrency exchanges will be required to implement anti-money laundering measures and know your customer requirements, as well as adopting information security management systems.
In taxing crypto gains, the same standard is being applied that is already used for other non-stock assets like real estate. An anonymous government official explained, “Unlike stocks, virtual assets are not considered financial assets in international accounting standards, and financial investment income, such as stock investment.”
Retail investors trading listed shares will have to pay a capital gains tax on stock investment profits which exceed 50 million won ($45,000) a year, starting from 2023. However, many feel the discrepancy between taxes on stocks and cryptocurrencies is unreasonable.
One retail investor commented, “I sold stocks I was holding recently and started to invest in (digital) coins after seeing my colleague made a lot of money from them. I think it’s unfair to charge that much (cryptocurrency) tax when compared to taxes on stocks.”
The government will also begin taxing gifts and inheritances received in cryptocurrencies. The daily average price of the asset for the month before and after the date of receipt will be used to calculate its price for tax purposes.
Head of the Bank of Korea, Lee Ju-yeol, told lawmakers today that “There is no intrinsic value in crypto assets,” according to the Yonhap News Agency. He added that “It is very difficult to predict the price, but its price will be extremely volatile.”