Korean government will start taxing cryptocurrencies such as Bitcoin from January next year. Investors are required to pay 20% as tax on any excess income over 2.5 million won obtained from buying or selling cryptocurrency.
On the 6th, the Ministry of Strategy and Finance unveiled the '2020 Tax Law Amendment Follow-up Enforcement Decree Amendment', which includes details on the taxation of cryptocurrency. Through this revised bill, the government specified taxation measures for calculating the necessary expenses for cryptocurrency.
Taxable targets include profits obtained from the cryptocurrency trading process, profits from cryptocurrency rentals, and inherited cryptocurrencies. From January 1, 2022, those who earned profits from cryptocurrency must pay 20% of the profits exceeding 2.5 million won per year as other income tax.
Taxable income is the amount of total income minus necessary expenses (actual acquisition price, etc.). In this revised bill, the first-in, first-out method was introduced as a method of calculating the acquisition price when calculating necessary expenses. It is a method of calculating the necessary expenses, assuming that the cryptocurrency purchased first was transferred sequentially.
The taxation proceeds also on cryptocurrencies held before January 1 of next year, the time of taxation. The government introduced the concept of agenda acquisition price in the amendment. Accordingly, the acquisition price of cryptocurrencies held before January 1, 2022 is calculated as the larger of the market price at December 31, 2021 and actual acquisition price.
Here, the market price at the time of December 31, 2021 refers to the average of the prices announced by cryptocurrency exchanges at 00:00 on January 1, 2022. Among the exchanges designated by the Commissioner of the National Tax Service among exchanges that have completed reporting virtual asset business operators to the authorities in accordance with the SFIA (Specific Financial Information Act), the cryptocurrency price standards are disclosed daily.
In addition, the amendment specified the range of data that virtual asset providers must submit to impose income tax. From January 1, 2022, virtual asset providers are required to submit transaction specifications for each trader, including quarterly and yearly transaction details of exchange users.
In the case of non-residents and foreign corporations, the virtual asset business entity is taxed in a way that withholding the lesser of 20% of the cryptocurrency income or 10% of the payment amount. The amount of tax withheld by the non-resident was to be paid by the 10th of the month following the withdrawal date of KRW and cryptocurrency.
Earlier, the government planned to impose taxation on income generated from cryptocurrency from October this year. However, it was pointed out that the timing was too early when considering the schedule for accepting reports from virtual asset business operators due to the enforcement of the Special Financial Information Act, and the taxation period was postponed for three months.