South Korea’s new crypto tax law, effective January 2025, exempts personal exemptions from increased tax burdens.
The law includes income tax on residents, withholding tax on non-residents, and gift tax on virtual assets.
Personal tax credits remain unchanged for those earning over KRW 1 million annually from crypto investments.
South Korea’s cryptocurrency investors can breathe a sigh of relief as the government has delayed the implementation of new virtual asset tax regulations until January 2025.
The new rules, which were initially planned for early 2023, have been pushed back to address concerns about their impact on individual investors’ tax burdens and to clarify certain aspects of the regulations. This update addresses concerns that investors’ capital gains from crypto assets could increase their tax burden. However, it has been clarified that income from crypto investments, categorized as “other income subject to separate taxation,” will not influence personal tax credits.
The new rules cover several tax types: gift tax for residents, income tax for individuals, withholding tax for non-residents and foreign companies, and corporate tax for local corporations. This delay mainly affects the income tax on resident individuals and the withholding taxes on non-residents and foreign companies.
Under current laws, gifts of virtual assets are subject to gift tax. The value of these assets, traded on the four major exchanges in Korea, is averaged over a period surrounding the gift date. This tax can be levied within ten years, extending to fifteen years in cases of non-filing or fraud. While there are debates about whether non-fungible tokens (NFTs) should be considered virtual assets, they are likely subject to gift tax due to their classification as properties or gains.
Income tax in Korea is imposed on incomes listed in the Income Tax Act. The Act was amended on December 29, 2020, to include the transfer of virtual assets. Initially set for January 2022, the effective date was deferred to January 2025.
From January 2025, non-resident individuals and foreign corporations will face withholding tax when transferring, exchanging, or withdrawing virtual assets from exchanges. Current laws are unclear on whether Korean exchanges must withhold tax before the new amendments take effect.
Under the Corporate Tax Act, income not listed but increasing a corporation’s net worth is taxable. This principle remains unchanged with the new amendment. Currently, corporations cannot obtain ‘real name accounts’ required for virtual asset trading, leading them to use other individuals’ accounts or over-the-counter transactions.The delayed implementation provides a window for both the government and the crypto industry to fine-tune the regulations and ensure a smoother transition into the new tax regime come 2025. The ultimate impact on South Korea’s burgeoning crypto market remains to be seen, but the delay is a welcome development for many investors.
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