As South Korea prepares to implement cryptocurrency taxation next year, financial industry officials and investors are raising alarms over the nation’s readiness to handle the new tax framework. Concerns are mounting that insufficient preparation could lead to widespread confusion among investors and tax authorities, particularly given the volatile nature of digital assets.
The new measure, set to take effect in January 2025, imposes a 22 percent tax on profits from cryptocurrency trades exceeding 2.5 million won ($1,813) within a one-year period. Unlike financial products, which are taxed as financial investment income, virtual assets in Korea will be taxed as other income. This tax will cover not only trading profits but also gains from activities such as mining, airdrops, hard forks, and staking.
Originally scheduled for January 2022, the implementation of the tax was delayed due to the absence of an adequate taxation system and investor protection rules. Despite the two-year postponement, industry insiders and investors argue that many uncertainties remain unresolved, making the upcoming taxation process highly contentious.
Critics point out that, unlike the stock market, virtual assets still lack specific guidelines and a comprehensive legal framework. A public petition submitted to the National Assembly requested a further delay in the taxation of cryptocurrencies. The petition warned, “If taxes are imposed without proper preparation, many coin investors could migrate to exchanges overseas.” It called for a two-year postponement to thoroughly examine potential issues before proceeding. However, this petition expired automatically when the 21st Assembly ended its term on May 29, leaving the issue unresolved as the implementation date looms.
One of the significant challenges is the inherent volatility and frequent trading of cryptocurrencies compared to other assets. An industry source highlighted the difficulties in tracking the initial acquisition price when using decentralized exchanges on the blockchain. “If transactions pass through multiple exchanges, including ones overseas, it becomes complicated as digital wallet addresses and transaction histories must be collected individually from each exchange,” the source explained. Under the current plan, the burden of proving tax liability could fall heavily on investors.
Domestic exchanges are also worried about a potential exodus of investors seeking to evade taxes. The current taxation framework relies on voluntary reporting by investors, with overseas exchange operators unlikely to fully cooperate with Korean tax authorities. This lack of cooperation could further complicate the enforcement of the new tax regulations.
Kim Kab-lae, head of the Korea Capital Market Institute’s Financial Law Center, emphasized the need for the government to issue detailed taxation guidelines to prevent market confusion. “To improve tax compliance rates and the quality of related tax services, the public sector needs to establish an efficient virtual asset taxation system, while the private sector should release more user-friendly virtual asset tax calculation programs,” Kim stated. He added that enhancing the infrastructure would require clear guidelines to increase the rationality and predictability of the tax system.
As the countdown to January 2025 continues, the unresolved issues and the potential for significant disruption remain a cause for concern among all stakeholders involved in South Korea’s burgeoning cryptocurrency market.
