South Korea to Tax US Stock-Linked Perpetual Futures on Overseas Crypto Exchanges at 11% From Next Year

South Korea plans to impose an 11% capital gains tax from next year on profits from US stock-linked perpetual futures traded on overseas cryptocurrency exchanges, Maeil Business Newspaper reported on November 2.

The Ministry of Economy and Finance will classify the products as foreign stock derivatives and include them in the tax base, the newspaper said.

The instruments are derivatives tied to futures indexes tracking the share prices of US-listed companies such as Nvidia, Apple and Tesla. Instead of holding the underlying shares, investors post margin and take positions on whether the stock price will rise or fall.

Unlike conventional futures, the contracts have no expiration date and can be traded around the clock on overseas crypto exchanges. Stablecoins pegged to the dollar are typically used instead of dollars in the trading process.

The government decided to tax the gains because the underlying assets are foreign stocks that are already subject to taxation. The 11% rate is lower than the 22% applied to overseas cash equities. The newspaper said the rate reflects the current tax framework used for domestic and foreign derivatives.

Tax will be levied on profits after a basic annual deduction of about $1,810. Assuming no other gains or losses, an investor making about $72,500 in profit would pay roughly $7,760 in tax, including local income tax. The tax burden on the same profit from overseas cash equities would be about $15,600.

The market for US stock-linked perpetual futures has expanded quickly this year. Industry data show trading volume in the products across 19 global exchanges reached $1 trillion from January through August.

Binance launched perpetual futures tied to about 150 US-listed companies in January, starting with Tesla. Products tracking large-cap stocks such as Meta and Alphabet, as well as small-cap names, are also being traded.

The products are not permitted in South Korea, meaning investors must move crypto assets to overseas exchanges to trade them. The government plans to identify investment records at foreign exchanges and use them for taxation.