South Korea Says Crypto Tax Separate From Investment Income Levy, to Start as Planned

South Korea’s Ministry of Economy and Finance pushed back against criticism over the planned rollout of a tax on virtual assets next year, rejecting claims that scrapping the financial investment income tax would make the crypto levy unfair or amount to double taxation.

Moon Kyung-ho, director of the ministry’s Income Tax Division, said at an emergency forum on virtual-asset taxation on May 7 that the system should take effect as scheduled on Jan. 1, 2027, based on the principle that income should be taxed where it is generated.

Moon also drew a firm line between the crypto tax and the financial investment income tax. Legislation to tax virtual assets passed the National Assembly in December 2020, earlier than the financial investment income tax regime, he said, adding that it is inappropriate to argue the latter is a precondition for the former.

The fact that minority shareholders in listed stocks are not taxed does not mean all financial investments are tax-exempt, he said. Major shareholders, overseas stocks and unlisted shares are already taxed, making the case for excluding only virtual assets from taxation unbalanced, he added.

Addressing criticism from academia and the industry that treating virtual assets as miscellaneous income rather than capital gains is disadvantageous, Moon said International Financial Reporting Standards classify crypto assets as intangible assets. He added that there is no suitable alternative classification beyond intangible assets.

Miscellaneous income is taxed at a flat 20% rate, or 22% including local income tax, which can be more favorable for high-income earners than capital gains or other income categories that may face a top comprehensive income tax rate of 45%, he said. Classifying crypto under the broader miscellaneous income category, rather than the itemized capital gains framework, also allows income from staking, airdrops and other forms of earnings to be covered without legal disputes, according to Moon.

Moon also rejected criticism that the system is unfair because it does not allow loss carryforwards. Such deductions are not yet fully permitted for other financial products, including stocks, he said.

He dismissed claims that value-added tax results in double taxation as incorrect. No VAT is imposed on the supply or transfer of virtual assets themselves, Moon said. VAT paid by exchanges such as Upbit applies to brokerage services, not to profits from crypto trading, so it does not constitute double taxation. He compared it to real-estate transactions, where land itself is not subject to VAT but brokerage fees charged by licensed agents are.

On concerns about weak tax infrastructure, Moon said the National Tax Service’s electronic system has already been built. He said the government will continue to expand its ability to detect taxable transactions through overseas asset reporting rules and the Crypto-Asset Reporting Framework, or CARF. Detailed tax standards for various transaction types, including staking, will be disclosed transparently through future notices from the National Tax Service, he added.