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20% income tax on investment income exceeding 2.5 million won from 2022

The amendment to the "Tax Law" passed on November 30 stipulates that the government will tax investment income from cryptocurrencies such as Bitcoin in accordance with the standard of "other income" from January 2022, which will be included in the draft issued by the Ministry of Planning and Finance in July. The start of tax collection on October 1 next year has been delayed by three months.

The taxation method follows the original plan of the government. The income of investors from buying and selling cryptocurrencies will be consolidated on a yearly basis, and other income taxes will be levied separately at 20%. For example, if an investor obtains a total of 5 million won in income from buying and selling bitcoins in 2022, the tax payable is 20% of the remaining 2.5 million won after deducting the threshold tax of 2.5 million won, that is, 500,000 won.

The tax payable by non-residents and foreign legal persons will be withheld by institutions such as cryptocurrency exchanges when the actual transaction occurs according to the lower standard of 10% of the transfer price and 20% of the transfer price difference.

According to the analysis, the South Korean government postponed the cryptocurrency taxation time for three months, which partly reflects the industry's concern that the reserved time is not enough for cryptocurrency exchanges to build taxation infrastructure.

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Is the taxation standard different from the stock transfer income tax, or is it unfairly disputed?

The Planning and Finance Committee also voted on the same day to expand the collection of income tax on stock transfers, and decided to set up a new tax category of "financial investment income" from 2023 to tax the income from financial investment products such as stocks and funds. Therefore, starting from 2023, investors will be subject to taxation as long as their gains from transferring all listed stocks exceed 50 million won. However, the securities transaction tax will be cut by 0.02 percentage points next year and further cut by 0.08 percentage points to 0.15% in 2023.

The decision by the Planning and Finance Committee is expected to raise questions about the unequal taxation of the cryptocurrency market and the stock investment market. The threshold for income tax on stock transfers is 50 million won, while that for cryptocurrencies is only 2.5 million won. The gap between the two is too great. Moreover, the taxation time for cryptocurrencies is a year earlier than that for stock investments, which is also unfair. The association stated that “the infrastructure for collecting income tax on stock transfers is already in place, but the start time is set for 2023, and the taxation of virtual assets needs to be prepared from scratch, but there is not enough time reserved, which is unfair.”

JOIND Kwon Seon-wo, reporter