South Korea Faces Major Hurdles Taxing Overseas Crypto Gains, Ruling Party Floor Leader Says

The South Korean government has put in place a system to tax income from virtual assets such as cryptocurrencies, but large gaps in its ability to track overseas holdings make the levy effectively unworkable, according to Song Eon-seog, floor leader of the ruling People Power Party.

Song Eon-seog, ruling party floor leader, discloses National Tax Service data

Overseas taxation remains unworkable; China, Russia and the US are outside the current system

Burden would fall only on domestic investors, undermining tax fairness

Song said on April 10 that National Tax Service data showed gains generated at exchanges in countries outside the 56 jurisdictions participating in the Crypto-Asset Reporting Framework, or CARF, are difficult to identify. He said that raises concerns over tax fairness and capital outflows. He also pointed to persistent uncertainty over the virtual-asset income tax, scheduled to take effect in January next year, because taxation standards for key types of crypto income have yet to be finalized.

The data also showed clear limits to taxing income earned through overseas exchanges. Only 56 countries, including Japan and Germany, are participating in CARF. China and Russia are excluded, though Hong Kong is included, leaving unavoidable gaps in enforcement. Taxation standards are also absent for decentralized finance, or DeFi, which operates without exchanges, unlike centralized finance, or CeFi, platforms such as Upbit, Bithumb and Coinone. Song said DeFi could effectively remain outside the tax net.

Under those conditions, imposing the crypto income tax would leave users of domestic exchanges bearing the burden, while investors who move to overseas exchanges or DeFi would be more likely to avoid taxation, he said. That could undermine tax fairness and accelerate a shift by domestic exchange users into areas beyond the reach of enforcement. According to DeFiLlama, a crypto market analytics platform, total value locked in DeFi stood at $94.932 billion as of April 9.

Detailed taxation rules also remain unsettled. Authorities are still gathering overseas legislative examples and expert opinions on taxation standards and scope for major types of crypto income, including staking rewards, lending, airdrops, hard forks and non-fungible tokens, or NFTs, as well as acquisition prices and cost-basis calculation methods.

"The fact that even taxation standards have not been prepared despite a five-year grace period shows the system lacked feasibility from the start," Song said. He added that keeping a tax only on virtual assets after the financial investment income tax was abolished is unfair. The government should acknowledge the system's fundamental limits and fully reexamine and scrap the virtual-asset income tax to protect 13 million investors and South Korea's domestic virtual-asset market, he said.

Lee Hyun-il, Hankyung.com reporter hiuneal@hankyung.com