South Korea has confirmed its intention to introduce a 20% cryptocurrency taxation starting in January 2025, with an exemption limit of $35,919 (50 million Korean won). The new framework aims to strike a balance between protecting investors and regulating the market.
The updated tax rule will impose a 20% tax on crypto profits exceeding the exemption limit, with an additional 2% local tax levied. This represents a significant increase from the former threshold of $1,795, which was approved by South Korea’s National Assembly.
The introduction of the tax was initially proposed in 2021 but was delayed twice due to pushback from investors. The revised exemption limit is expected to make sure that the majority of retail investors remain unaffected by the new tax rule.
The proposal also includes a provision that allows taxpayers to claim up to 50% of the total sale price as the acquisition cost, in case investors don’t have accurate records. This is intended to provide more flexibility to taxpayers and help stabilize the market.
As Dacian (@DevDacian) pointed out on Twitter, South Korea has no capital gains taxes on crypto, and foreigners can benefit from a 19% flat tax rate for income tax. However, it is worth noting that foreigners are currently unable to sell crypto for fiat on Korean exchanges unless they create a company.
The introduction of the tax is part of the government’s move to regulate the cryptocurrency market. In June, South Korean officials proposed scrapping the income tax on crypto gains altogether, as part of a broader effort to abolish the tax on financial investments.
Key legislative votes are scheduled for November, with the Tax Subcommittee of the Strategy and Finance Committee set to review the proposal on November 25. A plenary session vote is anticipated on November 26.
Predictions:
Based on the proposed tax framework, we can expect the following developments in the South Korean cryptocurrency market:
- A short-term market correction as investors adjust to the new tax rule.
- An increase in institutional investment in the cryptocurrency market, as the tax framework provides more clarity and stability.
- A shift towards more tax-efficient investment strategies, such as holding onto assets for longer periods to minimize tax liabilities.
- A growing demand for cryptocurrency-related services, such as tax consulting and portfolio management.
Overall, the introduction of the 20% crypto tax in South Korea represents a balanced approach to regulation, aiming to protect investors while also promoting market growth and stability.
