A digital price board at Upbit, a South Korean cryptocurrency exchange located in Gangnam ditrict in Seoul, shows prices of Bitcoin and Ethereum in the morning on Monday. (Yonhap)
South Korean investors who make more than 2.5 million won ($2,260) from cryptocurrency trading will face a 20 percent tax starting next year, according to the Ministry of Economy and Finance on Monday.
The first 2.5 million won is tax-free. For instance, if an investor makes a 10 million won profit from trading Bitcoin, 7.5 million won of that amount will be subject to the 20 percent tax.
Inheritances and gifts of cryptocurrency will also be taxed. In such cases, the price of the asset will be calculated on the basis of the daily average price for one month before and one month after the date of the inheritance or gift.
The changes are part of the annual tax code revision approved by the National Assembly in December.
Taxation has become a critical issue for investors in the cryptocurrency and stock markets as rallies in both markets continue.
But Bitcoin investors have been raising concerns over the heavier taxes to be imposed on cryptocurrency trading compared with stock investment.
“I sold stocks I was holding recently and started to invest in (digital) coins after seeing my colleague made a lot of money from them,” a police officer surnamed Choi said. “I think it’s unfair to charge that much (cryptocurrency) tax when compared to taxes on stocks,” he added. He was referring to the revised capital gains taxes on stock investment.
Starting from 2023, capital gains from stock investment exceeding 50 million won a year will be subject to taxation for retail investors who trade listed shares.
The government is struggling to figure out how to deal with a long list of digital currencies, saying it will apply a standard used for other nonstock assets such as real estate, which has an exemption of 2.5 million won.
“Unlike stocks, virtual assets are not considered financial assets in international accounting standards, and financial investment income, such as stock investment,” an anonymous government official was quoted as saying by Yonhap News Agency.
In addition to the tax on cryptocurrencies, which is part of the government’s efforts to set up a firm regulatory framework on this new class of assets, new regulations are set to take effect for the industry. In March, a revision to the Specific Financial Transactions Act will add crypto exchanges to the list of financial organizations that are obliged to adopt information security management systems and real-name account requirements as well as anti-money laundering measures.
The strengthened measures come amid buying frenzies in both crypto and stock investments.
The number of new accounts created to trade cryptocurrencies at NH Nonghyup Bank, Shinhan Bank and K bank was 1.4 million in January, up 30 percent from 1.08 million new accounts opened in the same month last year.
To trade at crypto exchanges in Korea, the account must be in the trader’s real name. Crypto exchanges are attracting many new users, with local exchange Bithumb seeing 760 percent growth in new registrations in January from a year earlier.
By Park Ga-young (firstname.lastname@example.org