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[Delio] Crypto tax perspective of South Korea investment — from taxable events to the world ranking | Exclusive Korean crypto market insights

The industry’s turmoil and declining pricing don’t seem to have slowed Koreans’ desire for cryptocurrency, blockchain technology, and all things web3.

The collapse of the South Korean cryptocurrencies Luna and TerraUSD in May resulted in a $300 billion loss for the whole crypto industry, calls for the imprisonment of Do Kwon, the coins’ inventor, and other investigations. But despite this and a wider “crypto winter” that has driven prices down across the board, South Korea’s thirst for anything web3 does not seem to have diminished.

Over 7,000 individuals registered to attend Korea Blockchain Week this weekend, and there are over 120 speakers scheduled to talk. The chief executive officer of the event, Jeon Seon-ik, said that this year’s event was one of the biggest in Asia, if not the entire globe.

Diving into numbers, the Korea Financial Intelligence Unit (FIU) under the Financial Supervisory Commission (FSC) discovered that a total of KRW 2,073 trillion worth of digital coins exchanged hands in South Korea from June to December, or KRW 11.3 trillion on average per day, according to its first on-site study on 29 crypto trade related businesses.

15.25 million people have accounts with local crypto exchanges, but just 5.58 million of those people are active traders. Age-wise, individuals in their 30s got the biggest share (31%), while those in their 40s took the second-largest share (27%). 67%of users were men, which is twice as many as women.

Such strong industry growth indicates a long-term crypto fever. And the local government plans to take a bite of it, implementing a crypto tax.

In this article, the authors explain how cryptocurrency is taxed and how the upcoming crypto tax system will affect Korean investors.

Crypto tax to postpone until 2025?

While South Korea is known for its tremendously popular investment option among younger people as the fastest way to make money, the government recognizes this type of asset as the income that is supposed to be taxable.

At the end of November, due to the latest crypto collapses following millions of losses, the South Korean government urged crypto tax implementation to January 2023 for the second time in 2022.

Later, on December 23, the taxation of digital assets was officially postponed until 2025. Investors, who were concerned about how taxes would perform the following year, can breathe a sigh of relief.

No cryptocurrency-related transaction or event is currently subject to any kind of taxes in Korea, except for domestic companies that do provide crypto services, including crypto exchanges, lending, borrowing, savings, and others.

Check our details on the crypto tax delay

Any crypto regulations?

Along with the crypto tax system implementation, Korea has been continuously discussed crypto assets regulation to protect investors.

South Korean VASPs must now comply with AML/CTF regulations due to cryptocurrency legislation, and those who do not risk severe regulatory repercussions. Financial institutions in South Korea are subject to the following key legal agencies’ enforcement of anti-money laundering (AML) and counter-terrorist financing (CTF) regulations:

- the FTRA, or the Act on Reporting and Using Specific Financial Transaction Information;

- the Terrorist Financing Act, which prohibits the financing of terrorism and the proliferation of WMD;

- The Criminal Proceeds Act;

- The Narcotics Trafficking Act is item.

Tax perspective

Since there are so many distinct sorts of cryptocurrencies, there is much room for argument on their exact definition. However, many have several often-recurring traits, with blockchain technology, decentralization, and presence in the virtual world being the most important.

South Korea’s stance on this is unambiguous, as with many other OECD members. It should be recognized as an asset for tax reasons. In fact, a more accurate English translation of the Korean term for a cryptocurrency (가상자산) would be a virtual asset.

Crypto taxable events

The taxes treatment is evident if it is recognized that cryptocurrencies should be handled as assets since it essentially adheres to the same tax laws in South Korea that govern transactions involving other assets.

At first look, several potential cryptocurrency-related transactions can qualify as taxable ones, including creation (or purchase), disposal (including moving from an exchange platform to a personal wallet), and lending.

In South Korea, creating or acquiring a cryptocurrency is not taxed. That holds regardless of how it was produced, such as by mining or another method, or how it was purchased for money or another kind of value.

Nevertheless, the production or acquisition of a cryptocurrency still has some tax implications because its value at the time of creation will be utilized to determine the taxable gain. The acquisition price for cryptocurrencies held before January 1, 2023, shall be deemed the greater of the market value at that time or the actual acquisition price.

Cryptocurrency profits will be classified as other income under the proposed legislation. They should be reported as such on tax forms depending on the residents and non-residents, and individuals and corporations.

Resident individuals

Over KRW2.5 million (USD1,750), global cryptocurrency profits are subject to a 22% flat tax, which must be declared yearly during the income tax return period (May). The tax cannot be avoided by storing cryptocurrencies in accounts located outside of South Korea because it is applicable to gains made worldwide.

Domestic corporations

Cryptocurrency profits are added to the other yearly taxable corporate income, like other taxable gains, and are taxed at a progressive rate of 22% for income over KRW200 million, 24.2% for income between KRW20 billion and KRW300 billion, and 27.5% for income above KRW300 billion.

Non-residence or foreign corporations

For the purposes of international taxation, cryptocurrency profits having a link to Korea (such as a trading platform situated in South Korea utilized for relevant transactions) will be treated as South Korean-sourced income and taxed at the lowest of 22% of gain or 11% of transfer price, as applicable.

Value-added tax (VAT)

In 2021, the tax administration issued recommendations that suggested bitcoin transactions are exempt from VAT. This therefore seems to be the situation for the time being, while there is no absolute guarantee.

What about global crypto tax ranking?

Depending on the country and the length of time holding your crypto, the rate range varies.

Crypto tax ranking

Here are the top 5 countries with the best crypto tax for residents:

Top 3 countries with the best crypto tax for residents

1. Germany: It seems entirely appropriate for a nation where citizens have a long history of conserving money rather than spending it to have a very generous no tax on gains policy if your cryptocurrency is held for more than a year.

2. Italy: Gains from Italian sources are taxable as income, while gains from crypto assets up to a staggering €51,000 are free from tax, making overseas income and gains exempt from Italian tax.

3. Switzerland: Individuals investing in cryptocurrencies are generally exempt from taxes, and the nation also offers a large income allowance of up to $18,000 USD.

4. Singapore: Singapore is a desirable place to trade and invest in crypto with a 22% tax rate and no capital gain tax on crypto earnings.

5. Slovenia: Slovenia applies no capital gains tax on individuals when they sell crypto. Moreover, gains are not considered to be income.

In the case of the USA, the IRS has recently released a draft of the 2023 tax return. The form now includes a separate section for “digital assets.” “At any time during 2022, did you (a) receive (as a reward, award, or payment for property or services); or (b) sell, exchange, gift, or otherwise dispose of a digital asset (or a financial interest in a digital asset)?” is an extended question from this year’s tax return that is included in this section.

Check out more:

Food for thoughts

The good news is that cryptocurrency profits are now completely tax-free, and it’s doubtful that this will change for at least the next two years, which is fantastic news for individual (but not corporate) investors.

Other loopholes in the amendment include being unable to track cryptocurrency trades that are not reported and having trouble obtaining investment data from overseas businesses that are utilized by Korean nationals. The debate over which NFTs (non-fungible tokens), a different kind of crypto asset, should be taxable is also unfinished.

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Delio is a certified crypto bank for digital asset management. Established in 2018, the company has acquired business licenses: Money Services Business (MSB) license in the US, and Virtual Asset Service Provider (VASP) license in Korea.

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Delio Digital Asset Finance Group, established in 2018, is №1 fintech company based in Seoul and acquired digital asset licenses from Korean and US governments.