Cryptocurrency Tax Rules
Tags: Medicine, Taxes, Blockchain, Cryptocurrency, Projects

Hi there! It’s obvious, that any industry, which currently stands at a rough valuation of more than 0.5 trillion USD will have to undergo certain speculations and manipulations. Thus the governments are putting all the efforts they can in order to prevent the malfunctioning cases found in the cryptocurrency market. Therefore, all countries both developing and developed ones, are currently coming up with certain regulations in order to oversee the business in the cryptocurrency market in order to deliver a safe and transparent space for the investors.

Cryptocurrency Tax Regulation

Starting from October 1, 2020, the cryptocurrency investors are required to pay a 20% capital gain tax on ‘excess profit’, if that profit goes beyond $2100. If the income level does not exceed this threshold, the taxation will not kick in. Non-residents and foreign corporations that trade on South Korean exchanges will also be taxed: under the new rules, Korean exchanges will be responsible for deducting the tax from transaction gains and paying it to the Korean customs office.

Taxation Period

According to the Income-Tax Act, the taxation period takes place from 1st January to the 31st December, roughly 1 year. Cryptocurrency taxes can be paid after reporting them together during the comprehensive income tax reporting period in May 2022. Cryptocurrency items will be added to the comprehensive income tax return form in the future.

Report Method

The South Korean cryptocurrency exchanges will start providing additional services for investors to assist them in reporting their taxes. Thus, you will be able to confirm the numbers in your capital gains through the exchange and report them in your taxation later. On the other hand, the National Tax Service will separately receive the details of all transactions incurred in the domestic exchanges on a quarterly basis and will compare them with every investor’s taxation report.

※ If an investor uses a domestic exchange that does not provide tax services, the investor should directly calculate the taxable income by computing the capital gains and report it to the National Tax Service.

Capital Gain Calculation

Taxes are levied on the proceeds deducted from the purchase price and additional expenses (transaction fees, tax expenses, etc.) from the selling price during one year, which is calculated for the threshold above $2100.

Reporting of accounts on the overseas exchange

The existence of overseas exchange accounts should be reported to the taxation authorities, apart from the report and payment made annually in May. The National Tax Service will add a crypto exchange account to the list of overseas financial accounts, once it is reported. However, if you decide to go the other dark way, you might get caught for not reporting your account, and for that, you will have to pay additional taxes and fines. In fact, you will be charged 20% for non-reporting and 40% for cheating (60% for out-of-regional transactions).

Can I use the OTC market to avoid taxation?

Once the revised Specific Financial Information Act takes effect in March next year, OTC companies operating in Korea will be defined as Virtual Asset Operators (VASP) and will be required to directly report to the financial authorities. However, it is not clear whether OTC companies will be required to report to the National Tax Service, as the enforcement ordinance of the tax law has not been issued yet.

Will it be possible to pay less taxes, if the numbers in the capital gains will be small? We can transfer the assets to our personal wallet before the tax is enforced and sell it as soon as we deposit it on the exchange after the tax is enforced?

Taxpayers will have to prove the acquisition value of the crypto they had even before the tax was enforced. Therefore, if you do not prove it before, it will be determined by September 30, 2021. If you acquire it after tax enforcement and fail to prove it, the acquisition price will be 0 KRW, so sales excluding 2% of local taxes will have to pay 20% of the total tax.