2027 Crypto Tax Needs Loss Carryforward, Fairness Review for Overseas Trades

As South Korea moves toward imposing taxes on virtual assets in 2027, the system needs to be refined to address issues including the lack of loss carryforwards and fairness in taxing overseas transactions, according to a speaker at a seminar.

Choi Hee-kyung, a specialist adviser and certified public accountant at law firm Bae, Kim & Lee LLC, made the remarks at a seminar held on Oct. 30 at the National Assembly Members' Office Building in Yeouido, Seoul, under the title "2027 Virtual Asset Tax Deferral: When Should It Take Effect?"

Choi stressed that authorities should assess how prepared both the government and the industry are before taxation of virtual-asset income under current law begins on Jan. 1, 2027. Corporate tax and inheritance and gift tax already apply to virtual assets, he said. What remains deferred is income tax on individual investors' capital gains and related income from virtual-asset transfers.

He also said the government's preparations are already well advanced. Referring to the Organisation for Economic Co-operation and Development's Crypto-Asset Reporting Framework, or CARF, Choi said South Korea is part of the schedule to begin information exchange in 2027. Still, he added, accurately identifying transactions conducted through overseas exchanges, personal wallets and decentralized exchanges, or DEXs, remains a challenge.

Choi cited the absence of a loss carryforward system as a key issue. Under the current tax framework, investment losses cannot be carried over to the following year and deducted from profits. Citing tax practices in major economies including the U.S., Germany and the U.K., he said authorities need to consider whether losses should also be properly recognized if profits are to be taxed.

He argued that the scope of taxable income also needs to be clarified. The planned regime focuses on transfers and lending of virtual assets, but standards for taxing income generated through staking, airdrops and hard forks have not been sufficiently established. He also identified as a major point of debate whether it is appropriate to begin taxation before a basic digital-asset law is enacted, given delays in legislation.

Choi also compared the case for implementation with the case for another delay. Supporters of moving ahead cite the principle that income should be taxed wherever it arises and argue that repeated postponements undermine policy credibility. Those favoring another deferral say more preparation is needed because of fairness issues between domestic and overseas transactions, the lack of loss carryforwards and insufficient investor-protection rules.

He also introduced alternatives including a transaction tax and a separate tax regime for virtual-asset investment income. "Beyond the question of whether to impose the tax or delay it, the discussion should also consider different types of income and the burden on taxpayers," Choi said. "I hope the tax debate will also take into account growth in the virtual-asset industry alongside regulation."