South Korea’s Ministry of Economy and Finance has started to review the crypto regulation in the country. In particular, they are reviewing a crypto taxation plan. As South Korea’s Yonhap News Agency has reported, the Korean finance ministry may introduce a 20% tax on crypto gains.
Until now, the authorities considered profiting from digital assets as capital gains, and the tax law in South Korea did not see cryptocurrency trading profits as taxable income. However, with the regulatory rule changing, traders within the country will have to pay taxes on anything they earn in this way. According to Korean experts, the government will now treat crypto trading gains as ‘other income’. This includes gains from lectures, lottery winnings, and prizes subject to 20% tax on 40% of total other income. The remaining 60% was tax-deductible.
A 20% tax on crypto gains is not yet a final decision. The government representative stated:
“The finance ministry 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 law comes into effect, the National Tax Service (NTS) — the Korean tax authority — will immediately impose a tax on gains from digital asset trading.
Bithumb Taxation Case
By the way, NTS has already started taking gains earned by foreigners from crypto trading for other income. Besides, the bureau has been collecting taxes indirectly through crypto exchanges. For example, in November 2019, NTS claimed that the country’s largest exchange Bithumb Korea would have to pay $69.2 million withholding tax on its foreign customers.
This claim was quite controversial as cryptos are not yet legally recognized currencies in Korea. Under local tax laws, those subject to taxation can withhold taxes on any income incurred by foreign residents from selling assets in Korea. But NTS categorized cryptocurrency trading of foreigners as miscellaneous income. The agency recognized capital gains from crypto trading as ‘assets’.
In response, Bithumb Korea has decided to take legal action against the withholding tax.
Crypto Taxation in Other Parts of the World
When it comes to cryptos, their regulation is a serious topic. Taxation rules are no exception. And each country is trying to find its own approach to crypto taxes.
For example, the U.S. Internal Revenue Service (IRS) categorizes cryptocurrency as ‘property’, or a capital asset, making it taxable in its jurisdiction as capital gains. Therefore, U.S. taxpayers should report to IRS when selling, converting, paying, donating, and earning cryptos as income.
In Canada, its Financial Transactions and Reports Analysis Centre mandates crypto exchanges to report all suspicious transactions and maintain records.
Australia taxes cryptocurrency considering the usage and the manner of obtaining the cryptocurrency. Cryptocurrency acquired and used for personal use is not subject to taxation.
In Japan, cryptos are ‘commodities’, and Japanese citizens pay income tax, company tax, and capital gains tax on crypto transactions.
Daria is an economic student interested in the development of modern technologies. She is eager to know as much as possible about cryptos as she believes they can change our view on finance and the world in general.