Taxation on Virtual Assets Looms, Domestic Exchanges Need Incentives for Compliance

With virtual asset income taxation set to begin in January 2024, South Korea's National Assembly Budget Office has proposed that authorities should develop policy incentives to boost domestic exchange usage while building a system for automatic tax calculation and filing linked to exchanges.

In its report 'Key Issues and Challenges of Virtual Asset Income Taxation,' the office stated that improving the effectiveness of virtual asset taxation requires enhancing both revenue tracking capabilities and taxpayer infrastructure. The Budget Office recommended strengthening the National Tax Service's ability to track and verify virtual asset transactions, while also encouraging investors to use domestic exchanges to make it easier for tax authorities to access transaction data.

Particularly, the office noted that measures should be developed to encourage self-reporting among investors using overseas exchanges not participating in the virtual asset automatic information exchange system (CARF), citing Japan as an example. Japan plans to apply a 20% separate taxation rate and three-year carryforward deduction for income generated through registered exchanges.

The Budget Office also emphasized the need for systems that simplify tax filing by automatically calculating acquisition costs and profits from multiple transactions, reducing the burden on investors. Pre-launch guidance and promotion are necessary to address potential confusion during implementation, with specific tax standards needed for various trading types, as outlined in guidelines, regulations, and FAQs.

Virtual asset income taxation was introduced following a 2020 amendment to the Income Tax Act but has been postponed three times. Under current schedules, taxation will begin on virtual asset gains or rentals occurring after January 1, 2024.