Government Plans to Calculate Income from Virtual Currencies! South Korea's Tax Law Amendment Proposes 22% Tax, Overseas Accounts Cannot Escape

According to a tax law amendment proposed by the South Korean Ministry of Economy and Finance on the 22nd, if passed by the parliament in September this year, profits from cryptocurrency will be subject to taxation starting from October next year, including 20% income tax and 2% local tax.

According to a report by CoinDesk Korea, the calculation method is as follows:

Tax Base = Selling Price - Buying Price + Additional Costs
*Additional Costs = fees, exchange tax costs, etc.

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Tax Standard: Taxation Starts at Over $2,000 USD

If this amendment is passed, South Korean exchanges must report to financial institutions by September 25, 2021. Any cryptocurrency profits exceeding 2.5 million Korean won (approximately $2,000 USD) will be subject to taxation. However, there is an exemption threshold of 2.5 million Korean won for those who exceed this profit limit. For example, if one makes a profit of 4 million Korean won, they will only be taxed on 1.5 million Korean won of the profit.

Starting in May 2022, reporting will be fixed on a quarterly basis and included in the comprehensive income tax return.

How Will Cryptocurrencies be Taxed?

South Korea will establish a system post-amendment where exchanges must submit transaction information to the government quarterly for taxation purposes.

How to Determine Purchase Price for First Taxation?

According to the amendment, investors must provide proof of purchase price to the National Tax Service. If unable to provide proof, the market price on September 30, 2021 will be used as the purchase price. However, discussions are ongoing on how to define the market price to prevent market confusion.

Proving Purchase Price is the Investor's Responsibility!

The amendment states that investors are obligated to prove the purchase price of virtual assets. If an investor purchases virtual assets after the tax law is in effect but cannot provide proof of purchase price, the cost will be calculated as zero and taxed accordingly.

Overseas Virtual Assets Cannot Escape

As per the amendment, due to the high transferability of virtual assets, South Korea's Ministry of Information and Technology will report all overseas exchange accounts to the National Tax Service and include virtual assets under international tax laws.

If deliberate tax evasion is detected, an additional 20% tax and 40% penalty for fraud will be imposed. Although tracing the flow of virtual assets is challenging, officials stated they will continue monitoring and enforcing regulations.