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

FSC says tokenized stocks qualify as securities

Finance Ministry says current capital-markets law allows taxation immediately

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. With the FSC’s interpretation — the key variable in determining how the products should be taxed — now settled, the government is poised to accelerate tax-rule changes and build out the infrastructure needed to collect taxes on tokenized stocks.

An FSC official told Bloomingbit on July 9 that tokenized stocks are “basically standardized securities in the form of shares issued as tokens” and “naturally have to be viewed as securities.” If the rights structure is the same as that of conventional shares, they qualify as securities under the Capital Markets Act regardless of how they are technically implemented, the official added.

Tax authorities say they are ready to move as soon as financial regulators classify tokenized stocks as securities. A Ministry of Economy and Finance official had earlier told Bloomingbit that if the FSC determines tokenized stocks are securities, they can be taxed under the current Capital Markets Act starting this year. While detailed classification may differ by token, any instrument whose economic substance is a security would fall under dividend income tax. The ministry also views tokenized stocks as securities.

Until now, the market had largely assumed tokenized stocks would be classified as virtual assets and remain untaxed until crypto taxation takes effect next year. Tax authorities, however, had already defined the economic substance of tokenized stocks as securities and were waiting for the FSC’s interpretation. With the FSC now clarifying their status, the government has the basis to tax them under existing law without a separate legislative revision.

Still, it may take time before a practical tax system is up and running. Much of the trading in tokenized stocks currently takes place offshore, including on overseas crypto exchanges, making it difficult for tax authorities to immediately identify individual transactions. A ministry official said tokenized stocks are taxable in principle, meaning taxpayers must report them voluntarily. Taxing unreported trades, however, requires access to transaction data, and the government is preparing the relevant systems.

To that end, tax authorities are participating in the Organization for Economic Cooperation and Development’s Crypto-Asset Reporting Framework, or CARF. The system calls for participating jurisdictions to exchange information on virtual-asset transactions annually. Because full implementation is scheduled to begin next year, practical taxation of tokenized stocks is unlikely to take hold in earnest this year.

The tax treatment of tokenized stocks will probably mirror that of 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 other foreign stocks. Trading gains would face a 22% tax rate, the same as capital gains on overseas shares, with a basic deduction of 2.5 million won ($1,810).

Demand for tokenized stocks has recently surged, especially among investors in US names 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 a month earlier. Overseas crypto exchanges including Binance and Backpack are also drawing South Korean investors by listing tokenized versions of domestic shares such as Samsung Electronics and SK Hynix.

Tokenized stocks are assets that represent conventional shares issued in blockchain-based token form. Investors can buy tokenized stocks linked to underlying shares on overseas crypto exchanges and sell them when prices rise to capture capital gains. Some products also pay dividends, giving them a return profile similar to that of ordinary foreign stocks. Their appeal includes round-the-clock trading and settlement in about 10 minutes.