Exclusive: South Korea Says Tokenized Stocks Are Securities, Starts Preparing Taxes

FSC says tokenized stocks are securities

Finance ministry says current capital-markets law allows immediate taxation

Dividend and capital-gains taxes set to apply

South Korea’s Financial Services Commission has made clear that fast-growing tokenized stocks should be treated as securities rather than virtual assets. The clarification settles the key question shaping their tax treatment and clears the way for tax authorities to refine rules and build the infrastructure needed to collect taxes.

An FSC official told Bloomingbit on July 9 that tokenized stocks are, in principle, standardized equity securities issued in token form. If the rights structure is the same as that of ordinary shares, the instruments qualify as securities under the Capital Markets Act regardless of the technology used, the official said.

Tax authorities have said they are ready to move ahead once financial regulators classify tokenized stocks as securities. A finance ministry official had earlier told Bloomingbit that if the FSC determines tokenized stocks are securities, taxation can begin immediately this year under the current Capital Markets Act. While classifications may differ by token, any instrument whose economic substance is a security would fall under dividend income taxation, the official said. The ministry also considers tokenized stocks to be securities.

Until now, the prevailing market view had been that tokenized stocks would be classified as virtual assets and would not be taxed before next year, when crypto taxation is due to take effect. Tax authorities, however, had already regarded them as securities in substance and were waiting for the FSC’s interpretation. With the commission now clarifying their legal status, the basis is in place to tax them under existing law without a separate amendment.

Still, building a functioning enforcement system will take time. A large share of tokenized stock trading now takes place offshore, including on overseas crypto exchanges, making it hard for tax authorities to immediately track individual transactions. A finance ministry official said tokenized stocks are taxable in principle, meaning taxpayers must report them voluntarily. Tax can be imposed on unreported transactions only after transaction data are obtained, and the government is preparing the relevant system, the official added.

To that end, tax authorities are participating in the Organisation for Economic Co-operation and Development’s Crypto-Asset Reporting Framework, or CARF. The system is designed to let participating jurisdictions exchange information on virtual-asset transactions annually on a reciprocal basis. Full implementation is scheduled to begin next year, which means meaningful taxation of tokenized stocks will be difficult this year.

Tokenized stocks are poised to receive the same tax treatment as ordinary overseas shares. Dividends would be subject to a 15.4% dividend income tax, including local income tax. Taxes withheld overseas would be settled in the same way as for existing foreign stock investments. Capital gains from trading would face a 22% tax rate, matching the capital-gains tax on foreign shares, with a basic deduction of 2.5 million won ($1,810).

The tokenized stock market has recently seen a surge in demand, particularly among investors in US shares such as xStocks, Tesla and Nvidia. According to real-world asset data platform RWA.xyz, global tokenized stock transfers totaled $8.41 billion in June, up 105% from the previous month. Overseas crypto exchanges including Binance and Backpack have also listed tokenized versions of South Korean stocks such as Samsung Electronics and SK Hynix to draw Korean investors.

Tokenized stocks are assets issued in blockchain-based token form and linked to conventional shares. Investors can buy tokenized shares tied to underlying stocks on overseas crypto exchanges and sell them later for capital gains. Some products also pay dividends, giving them a return profile similar to that of ordinary foreign stocks. Their appeal includes 24-hour trading and settlement that can be completed in about 10 minutes.