The South Korean government said on Friday that income derived from trading cryptocurrency will be subject to tax as planned, clearing way for the 20% tax on the gains made via digital currency that long remained a windfall, tax-free investment, The Korea Times reports.
Deputy Prime Minister and Finance Minister Hong Nam-ki said digital assets can be recognized as financial assets, backed by the entire transaction records to be preserved for taxation purposes.
“The cryptocurrency market with 500 trillion won ($433 billion) in annual trading volume has long remained outside the tax authorities’ scrutiny. That will no longer be the case following a revision of a related law,” Hong said during a government audit of the ministry at the National Assembly, Thursday.
The ministry will impose the tax after recognizing the gains as “other income,” an easier way for the government to levy the tax as opposed to property tax.
Property trading-derived capital gains are calculated by the difference between the value purchased and value sold at a particular date – the information yet to be made fully unavailable following a revision of a related law.
By contrast, those categorized under “other income” can be taxed based on income value at the date of taxation.
The grounds of the move was established by the relevant law revised in July to impose – on Korean citizens including residents and non-residents and foreign nationals ― a capital gains tax for profits made from cryptocurrency transactions.
Gains made by non-residents and foreigners after Oct. 1, 2021, will be subject to a tax rate of either up to 20% of the difference between sell price and purchase price or a 10% transfer price. Either amount ― whichever is lower ― must be paid on the 10th of every month. Exemptions will be granted to those eligible under certain related international treaties.
Koreans by contrast will have to pay a 20% tax for gains made in a one-year period of over 2.5 million won.
Those who made gains must file income statements with the National Tax Service between May 1 and 31. Gains made not only via local but also overseas crypto exchanges must be reported. Failure to report will result in an additional 20 percent in punitive taxes.
The revision followed passage in May of another law that governs rules cryptocurrency service providers including exchange operators should abide by.
Under the revision, the service providers are required to preserve transaction and user records that must be submitted regularly to the Korea Financial Intelligence Unit (KoFIU).
This laid the groundwork for the ministry to identify new sources of taxable income based on records of data previously unavailable.
MP supports Bithumb
Meanwhile, South Korean trading platform Bithumb has won a powerful supporter in its quest to fight an unprecedented multi-million tax bill after an MP and parliamentary finance committee member claimed the nation’s tax authority’s USD 67m tax bill – served to the crypto exchange late last year – has no legal basis, Cryptonews reports.
Per E Daily, Park Hyung-soo, a member of the National Assembly’s Planning and Finance Committee and an MP for the largest opposition party, the People Power Party, stated that the National Tax Service’s claim was “devoid of legal grounds.”