Cryptocurrency enthusiasts in South Korea are going to be watching news coming out of government channels closely for the next several weeks. According to local media sources, the country’s Ministry of Economy and Finance (MEF) is reportedly considering a new tax system for crypto holdings that could take a serious bite out of any gains. If the plan finds approval, crypto fans are going to have to give up a substantial portion of their earnings on digital currency holdings to the government.
The tax department of the MEF wants to tax crypto gains as a source of income, similar to how it views earnings from lotteries or other prizes. This would mean implementing a 20% tax on those gains, and it is seen as a move by the government to categorize crypto earnings as “other income,” instead of capital gains.
“Other income” in South Korea is described as any money that is received as prize winnings or as abnormal income that is infrequent or unusual. The total amount has a 60/40 split, with the 40% charged the 20% tax. The 60% is considered tax-deductible.
The plan has not yet been approved, but has a good chance of making it through. According to a government official, the MEF “is yet to finalize its direction but it surely has become more likely for the income from virtual asset trading to be labeled as other income, not as gains from transfer of capitals like real estate properties.”
If the proposal sees light, the tax bureau will be able to immediately start assessing the new regime. When viewed as capital gains, the bureau had to first be given trading data from crypto exchanges in order to ascertain the tax obligations and calculate the baseline for the payments.
The new rules would clear the air on the crypto tax requirements across the board and follows efforts already implemented by the tax bureau to classify certain crypto gains as other income. Currently, foreigners who trade digital assets on South Korean exchanges are supposed to have their gains taxed as other income, and crypto exchange Bithumb has already been handed a bill for $69.3 million by the National Tax Service (NTS) for not properly withholding the requisite taxes. The NTS guidelines stipulate that the income payer is responsible for withholding any applicable taxes due by foreign residents, which the exchange had not been doing. Bithumb is appealing the decision.
New to Bitcoin? Check out CoinGeek’s Bitcoin for Beginners section, the ultimate resource guide to learn more about Bitcoin—as originally envisioned by Satoshi Nakamoto—and blockchain.