The South Korean government wants to impose conditions on the trade of digital currencies and is taxing the profits of foreign customers first. This is according to a recent report in the Korea Times.
In view of the rising share price increases, the national tax authority of South Korea wants to tax the trade in crypto currencies such as Bitcoin at 20 percent. The capital gains will be classified as “other income” – in a category with winnings from prize money or lottery winnings.
The term “virtual currency” – or similar designations – has never been included anywhere in Korean tax law. Therefore, profits from trading in crypto-currencies could not be taxed in the country. The Ministry of Economy and Finance now wants to change this by more closely examining and controlling the profits made, according to the news magazine Korea Times on 20 January, citing an anonymous government spokesman of the ministry.
Equal taxation of crypto currencies and lottery
Whereas previously the responsible department for wealth tax checked the capital gains of crypto-currencies such as Bitcoin, the income tax department is now responsible for the further requirements. According to the Korean business magazine Pulse, the government will report profits from trading crypto-currencies as “other income” and not, as previously assumed, as capital gains. “Other income” is subject to a tax of 20 to 40 percent of the total amount. This includes winnings from prize money or the lottery. According to the government spokesman, however, the taxation plan has not yet been fully completed.
Clarity about crypto tax is urgently needed
A clear regulation for the taxation of cryptocurrencies is necessary in South Korea. This became particularly clear when Bithumb Holdings Co. Ltd, the sixth largest crypto currency exchange in the world and the country’s leading one, was attacked in late December. The demand of the tax authorities: Bithumb is to pay 80.3 billion South Korean won, approximately $69.1 million in taxes.
The demand of the National Tax Service (NTS) refers to the activities of the exchange’s foreign clients. The profits of foreigners were listed by the same authority as “other income”, i.e. taxable income, and the taxes were collected directly through the exchange.
As it became known in January, Vidente Co, the largest shareholder of the holding company, decided to take legal action against the claim. The accusation has no basis, as crypto-currencies such as Bitcoin are not a legal asset, according to financial regulatory advisor Choi Hwoa-in.
Significant developments since 2017
The South Korean authorities have seen significant regulatory developments since Park Yong-jin, a member of the ruling Democratic Party’s National Policy Committee, introduced the first tax policy on cryptos in 2017.
In 2019, the National Policy Committee of the South Korean National Assembly passed a law formally classifying cryptographic currencies as digital assets. This created a regulatory foundation for the operation and trading of crypto currencies.