South Korea Drafting Legislation To Tax Individual Crypto Profits
South Korea will not tax individual crypto profits yet, but legislation is in the works.
Cryptocurrency and taxation laws are creating a great deal of confusion in South Korea.
On Dec. 30, South Korea’s government stated that under current law, it cannot impose income taxes on individuals’ profits from transactions of cryptocurrency. This, however, contrasts with the National Tax Service’s recent imposition of an 80 billion won ($68.9 million) tax bill on local crypto exchange Bithumb Korea.
On Dec. 29, The Korea Herald reported that South Korea’s local tax agency received 80 billion won ($68.9 million) in taxes from the exchange. The following day, Choi Kyo-il, a lawmaker of the Liberty Korea Party and member of the National Assembly's Strategy and Finance Committee, received information from the Ministry of Strategy and Finance addressing the issue of taxation and cryptocurrency. The document showed that under the current tax law, individuals' profits from cryptocurrency transactions are not subject to taxation since they are not listed in the income tax law.
According to the ministry, South Korean income tax law contains an enumeration that only levies on income listed under taxation. Since individuals' profits from virtual currency transactions are not listed income, these earnings do not fall under income tax taxation.
Unsurprisingly, Bithumb is planning to file to avoid paying the bill, as taxation rules have not yet been applied to the cryptocurrency trading industry.
Taxes on virtual assets are in the works
While the South Korean government has said they are holding off on imposing taxation on earnings from digital asset trading, legislation is in the works.
South Korea’s previous Ministry of Strategy and Finance has confirmed that it will levy taxes on virtual assets through a tax code revision bill at a later date, as it’s impossible to impose income taxes under the current income tax law. The ministry said:
"In the case of a corporation's virtual currency transaction, all transactions that increase the entity's net assets are subject to taxation under the current law, so it is taxable, but it is practically impossible to produce tax revenue results by distinguishing only virtual currency transactions."
Moreover, the ministry added they are looking at cases of taxation by major countries to ensure consistency across international trends.
"We are preparing measures to impose taxes on virtual currencies by comprehensively reviewing cases of taxation by major countries, consistency with accounting standards and trends in international discussions on preventing money laundering."
South Korea needs to define cryptocurrency
According to the Korea Times, while the South Korean government does plan to create a bill addressing taxable cryptocurrency transactions by the first half of 2020, the country needs to come up with a clear definition of cryptocurrencies and digital assets.
Other matters that need clarification include the question of whether gains in cryptocurrency transactions are similar to gains in other assets, such as stocks or real estate. Moreover, the South Korean government will also have to access trading records on cryptocurrency exchanges before moving forward with taxation laws.
Meanwhile, the United States is likewise seeking clarification for cryptocurrency and tax laws. On Dec. 20, eight members of Congress sent a letter to the Internal Revenue Service (IRS) asking the agency for clarity on cryptocurrency tax laws. The letter reads:
“We wrote in April of this year urging the issuance of guidance for taxpayers who use cryptocurrencies and we are pleased to see that you have issued guidance and addressed many questions we posed. We are, however, concerned that this recent guidance creates many new questions related to the topics it seeks to address, namely forks and airdrops.”