South Korea Puts A 20% Tax Slab on Cryptocurrency Gains

The South Korean government has been working since long on the taxation process of digital currencies and it looks like they have finally made up their mind. In the latest development, the government has now decided to bring 20% tax on gains derived from crypto trading and investing.

The officials from the Ministry of Economy and Finance's income tax office had been reviewing the proposal for introducing clear rules for digital currency taxation. In a word with local news agency Yonhalp, an official from the income tax office said that South Korea plans to reclassify returns made from digital assets as “other income”.

Thus, the gains from cryptocurrency trading will be treated as “capital gains” or in a similar manner like the gains derived from winning a lottery. Now under the current legislative procedure, South Korea cuts 20% tax on 40% of the income derived as “other income”. The other 60% income can be treated as tax-deductible.

This is surprising turn of the Korean tax agency and the government. Just a few days back, the South Korean government said that it would exempt taxes on cryptocurrency profits.

Last month in December 2019, South Korea's Ministry of Economy and Finance said that it has been working on a new cryptocurrency tax regime. Speaking to the Korea Times, a ministry spokesperson said that a “revised bill” on cryptocurrency tax shall be passed in the first-half of 2020.

Speaking to another local news agency Pulse, a government official said: “The finance ministry is yet to finalize its direction but it surely has become more likely for the income from virtual asset trading to be labeled as other income, not as gains from transfer of capitals like real estate properties”.

However, once that the cryptocurrency rules are finalized, the Korean tax authority, the National Tax Service (NTS) will then easily tax cryptocurrency gains with immediate effect. Currently, foreigners who are trading on Korean crypto exchanges have to pay tax as the NTS collects taxes indirectly from the exchange operators.

Cryptocurrency taxation is a complex issue as governments and regulators have been struggling to deal with it for a long time. While the use of cryptocurrency is proposed in the mainstream, the U.S. government has recently asked to exempt taxes on small crypto transactions under $200.