South Korea’s tax authorities have advised the nation’s government to impose a low-level trading tax on capital gains made from digital currency trading before requiring Korean residents to pay a transfer income tax.
South Korea’s government will be introducing its new tax reform plan later this year.
The low-level trading tax on cryptocurrency trading has been suggested because there’s currently no proper legal framework to support transfer taxation.
South Korea’s Tax Policy Association members advised the country’s government, during a seminar on February 21, 2020, to introduce this two-step plan, while noting that adopting a deliberative approach to introducing an income tax for virtual currency transactions will prove to be most effective.
The Korea Blockchain Association reportedly agreed with the tax authority’s suggestion, while pointing out:
“Related laws are still absent and the taxation infrastructure is still insufficient to cover cryptocurrencies and, as such, some supplements need to be added on the expense calculation side.”
The Blockchain Association also mentioned that before requiring crypto investors to pay a transfer tax, there must be clarity on determining and defining digital currency acquisition costs. However, this may not be a simple task because virtual currencies are traded at varying rates on many different crypto exchanges in South Korea.
Korea’s Ministry of Economy and Finance might require crypto traders to pay a 20% tax on capital gains made from virtual currency transactions. A more definitive set of guidelines on taxes that need to be paid for crypto transactions is under development in South Korea. The nation’s previous Ministry of Strategy and Finance noted in January 2020:
“In the case of a corporation’s virtual currency transaction, all transactions that increase the entity’s net assets are subject to taxation under the current law, so it is taxable, but it is practically impossible to produce tax revenue results by distinguishing only virtual currency transactions.”