The Ministry of Economy and Finance has set the minimum threshold for taxable income earned through cryptocurrency trading at $2000
The government of South Korea has finalized its long-standing plan of imposing a tax on the income generated from cryptocurrency trading according to the revised tax code published by the country’s Ministry of Economy and Finance. After months of deliberation over updating the tax regime to include income earned by the trading of digital assets, the Ministry has decided to presently set the tax rate for crypto trading at 20%.
The changes to the current regulations were made today, after a Tax Development Review Committee meeting. The Ministry has published a detailed report on the new rules. In a section titled ‘Taxation on Virtual Asset Transaction Income’, the ministry acknowledges that the present tax laws do not accommodate the taxing of virtual assets, and both personal and foreign corporation’s income earned through crypto trading is thus non-taxable.
The report then states that continuing to have crypto trading as a non-taxable income is not sustainable and with its emerging importance, it was necessary to introduce a fair taxation policy for these financial assets. The report further points towards other countries who have taken such approaches to include cryptocurrency income in the taxation code by classifying them under similar rules as that of income from stocks and derivatives trading.
According to the new framework, profits earned from virtual currencies and other intangible assets will now be classified as taxable income. The framework identifies income earned from virtual assets up to 2.5 million won per year ($2,000) as below the minimum threshold for taxation. However, any gains above the minimum threshold will be taxed at a rate of 20%.
The tax rate is on par with the basic tax rate for most other taxable income and capital gains in the country. The rules under this new tax regime further provide guidance for calculating income derived from crypto trading and advise that tax be reported and paid annually each May.
The new framework also taxes non-residents and foreign corporations that trade virtual assets with South Korean exchanges. The rules indicate that the South Korean exchanges will be responsible for deducting the tax from transaction gains and paying it to the Korean customs office.
The Ministry of Economy and Finance must present the revised tax code for approval in front of the country’s National Assembly before the 3rd of September this year. The regulations are expected to come into effect on October 1st, 2021 if approved by the parliament.