South Korea is set to implement a 20% cryptocurrency tax starting in January 2025, with an additional 2% local tax on profits exceeding 50 million Korean won ($35,919). The Democratic Party of Korea has confirmed this new framework, which was initially introduced in October 2021 during the tenure of former President Moon Jae-in. The implementation of the tax was delayed twice in response to pushback from investors, but it is now set to go into effect in 2025.
The revised exemption limit of $35,919 represents a significant increase from the previous threshold of $1,795, which was approved by South Korea’s National Assembly. The updated framework aims to ensure that the majority of retail investors remain unaffected by the new tax rule. Additionally, taxpayers will have more flexibility as they can claim up to 50% of the total sale price as the acquisition cost if they do not have accurate records.
The government’s goal with this new tax policy is to stabilize the market and ease investor worries. South Korea currently does not have capital gains taxes on cryptocurrency, and foreigners can receive a 19% flat tax rate for income tax (which ends up being closer to 20.9% after resident tax). However, foreigners are unable to sell crypto for fiat on Korean exchanges unless they create a company.
Last year, the administration’s policy was set to be implemented in January 2023, but it was pushed back to 2025 by the government of then-President Yoon Suk Yeol due to concerns that the tax would overwhelm investors and harm the market. In June, officials from the Ministry of Economy and Finance proposed abolishing the income tax on crypto gains altogether, as part of a larger move to eliminate taxes on financial investments, including stocks and funds.
Key legislative votes on the proposal are scheduled for November, with the Tax Subcommittee of the Strategy and Finance Committee set to review it on November 25, followed by a plenary session vote on November 26. The Democratic Party of Korea is working to finalize the framework ahead of its planned rollout, as South Korea aims to strike a balance between protecting investors and regulating the market.
Overall, the new cryptocurrency tax in South Korea represents a significant development in the country’s regulatory landscape, with the government taking steps to ensure fair taxation while also supporting the growth and stability of the cryptocurrency market. Investors and stakeholders will need to navigate these changes for smarter investing in the future.