Taxes on cryptocurrency in South Korea: Confirmation!!
Taxed at 20%?
During his speech to the parliamentary finance committee on June 17, South Korean Finance Minister Hong Nam-Ki announced that he will unveil details of the new regime next month regarding his plan to tax cryptographic currencies. The ministry confirmed that taxes will be imposed.
In 2014, the Japanese government was considering how best to apply the country’s existing laws to Bitcoin. The government declared Bitcoin as a potentially taxable entity in its preliminary analysis of the currency and cited 11 different laws and regulations to conclude that Bitcoin is not a currency or asset covered by conventional commercial laws. As a result, Bitcoin and other digital currencies are no longer subject to the 8% consumption tax. However, as they are treated as assets, digital currency transactions remain subject to capital gains tax. Since then, income derived from trading in crypto, mining and others has been classified as miscellaneous income, subject to a tax rate of up to 55%. In comparison, gains from trading shares are taxed at 20%.
Taxed at 20%?
In 2017, the South Korean government has already revised its tax law to include crypto-currencies. However, the regulation has not been enforced. Early 2020, we’re back to the subject. According to a report in The Korea Times published on January 20th, the Ministry was already considering a 20% tax on cryptocurrency revenues. At the time, an anonymous official approached Yonhap, a South Korean news agency, suggesting that South Korea was considering reclassifying statements made about cryptos as a type of “other income”, treating them as lottery money rather than a form of capital gain.
In an interview with Pulse News, one government official said that:
“The finance ministry has not yet finalized its policies, but it has certainly become more likely that income from trading in virtual assets will be labeled as other income, rather than as gains from the transfer of capital such as real estate”.
However, the Korean Tax Policy Association subsequently proposed a two-stage tax structure, first introducing a low-level trade tax, and later introducing a tax on income in cryptographic currency.
In March this year, the Korean National Assembly outlined a first draft of laws concerning the taxation of crypto-currency. A law that requires crypto exchanges to record, store and, where appropriate, provide the authorities with details of their users’ transactions. Exchanges will therefore likely have to provide these details to the Financial Information Analysis Centre (FIU), which is part of the Financial Services Commission (FSC) of South Korea.
In May, the ministries were in the process of finalizing amendments to the Income Tax Act, according to E Daily, with new clauses introduced to make the imposition of crypto mandatory from 2021. A ministry official said:
“We are looking for ways to tax capital gains or other forms of tax on profits made by domestic and foreign investors using crypto-currency,” a ministry official was quoted by the daily as saying.
It is June 2020 and the ministry has finally confirmed that taxes will be imposed.
According to a report in the Korea JoongAng Daily, the ministry will reveal more details of the plan next month. Amongst other things, Hong Nam-Ki said that the government:
“Has continued to realign its tax system to take into account changing market conditions, but it is mainly focused on refining its list of taxable items and types of taxes this year.”
The Minister also stated that the government had participated in international discussions on a new digital tax structure. He expressed his personal support for such a tax, noting that it could increase the country’s tax revenue from foreign companies. However, he admitted that it could also make some local companies liable for foreign tax.
According to some South Korean economists, the new tax regime could halt the growth of the emerging digital currency market. According to a Korea Times source, a university economist warned that:
“It’s premature for the government to impose taxes on crypto-currencies at a time when the market hasn’t developed stably enough.”
Written by Laetisia Harson, Project Manager at Magna Numeris
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