After three delays, the tax takes effect in January — gains above 2.5 million won taxed at 20%
Trading profits, lending returns and staking rewards all lumped as 'other income' — experts say reclassification needed
Data gaps between domestic exchanges and overseas wallets persist; loss carryforward still not allowed
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Profits from a bitcoin spot ETF and gains from buying and selling cryptocurrency directly both stem from price movements in virtual assets — yet under South Korea's current tax framework, they may be classified under different income categories. Capital gains from trading virtual asset spot ETFs, which are permitted overseas, are treated as transfer income, while profits from directly buying and selling coins are set to be classified as other income.
The problem is that virtual asset investment goes well beyond simple trading. Staking is a prime example. It involves locking up holdings in a blockchain network for a set period to participate in transaction verification, in exchange for additional coins as a reward. The question is whether those rewards should be treated like interest or dividends, or classified as other income derived from virtual assets.
With the virtual asset tax set to take effect in January, fiscal authorities and the financial investment industry say the bigger debate is no longer about timing — it is about how to define the nature of the income itself.
Virtual asset taxation: what is taxed and how much
South Korea's virtual asset income tax regime was introduced in December 2020. It treats income from transferring or lending virtual assets as other income, subject to a flat 20 percent tax rate applied separately from other income.
Annual gains and losses are netted, a basic deduction of 2.5 million won ($1,860) is applied, and the remainder is taxed. Losses from virtual asset trading cannot be carried forward to offset income in the following year.
The tax will apply to transactions from 2027 onward, with filing and payment due in May 2028 based on the full-year profit and loss for 2027. The original implementation date was 2022. It was pushed back once to 2023, citing insufficient tax infrastructure — including difficulties verifying acquisition costs and securing transaction records. It was then delayed again to 2025, citing instability in the virtual asset market and the need to strengthen investor protection frameworks.
In 2024, the start date was pushed back once more to 2027, partly because international transaction data sharing under the OECD framework was not set to begin until that year. Now, after three postponements, the tax is approaching implementation again — but serious questions remain about whether the current framework can adequately capture the full range of transaction types.
Those structural shortcomings drew repeated criticism from experts at a forum on the 2027 virtual asset tax framework held at the National Assembly members' office building on Thursday. The forum was organized by the office of Democratic Party of Korea lawmaker Moon Jin-seog and co-hosted by the Digital Asset Exchange Alliance and the Korean Tax Law Association.
Park Jong-su, president of the Korean Tax Law Association and a professor at Korea University School of Law, said the current income tax law fails to adequately cover the full complexity of virtual asset transactions — including not just trading but also mining, staking, lending and liquidity provision.
The economic character of trading profits, fees earned from lending coins, and rewards received for participating in blockchain verification work are fundamentally different. Yet the current plan would lump all of them into a single category — other income — for tax purposes.
Other income typically covers items such as lottery winnings and one-off prize money. Critics say classifying virtual asset trading profits under the same category would effectively treat cryptocurrency investment the same way as winning a lottery or a windfall.
Park proposed a dedicated "virtual asset investment income tax" framework that would classify income according to the actual nature of each transaction — trading profits as transfer income, lending returns as interest income, and so on.
Others at the forum pointed to the mechanical transplanting of accounting standards into tax law as the root of the problem. Under international accounting standards, virtual assets were provisionally classified as intangible assets, and tax law then moved them into the residual "other income" category without sufficient review.
As virtual assets grow increasingly diverse — encompassing stablecoins, security token offerings and more — taxing them based solely on the asset label, rather than the substance of the transaction, makes it difficult to reflect economic reality, experts said.
Income classification must be fixed before the tax kicks in
The absence of transaction-specific standards becomes even more apparent in the cases of airdrops, hard forks and staking.
An airdrop distributes new tokens to existing virtual asset holders at no cost. A hard fork creates new tokens when a blockchain protocol splits into two. Staking involves providing held virtual assets to support blockchain verification work in exchange for additional assets.
It is unclear whether the taxable moment should be when the tokens are received or when they are actually sold and converted to cash. Determining the acquisition cost of freely received tokens is another unresolved issue.
Securing tax data also poses a challenge. The government plans to obtain transaction records through mandatory submissions by virtual asset service providers, reporting requirements for overseas virtual asset accounts, and the National Tax Service's integrated virtual asset analysis system.
International cooperation is also underway. Under the OECD's Crypto-Asset Reporting Framework, South Korea, Japan and 44 other countries will begin exchanging transaction data in 2027. Singapore, Hong Kong and 27 other countries will join in 2028, with the United States starting information exchange in 2029.
However, a gap in data availability may emerge between users of domestic exchanges and those using overseas exchanges or personal wallets. Transaction records from domestic exchange users will be systematically reported to tax authorities, while trades conducted through overseas exchanges or personal wallets may be far harder to track.
The same applies to trades on decentralized exchanges and peer-to-peer transactions. Where there is no intermediary or no clear obligation to submit records, tax authorities will struggle to verify that a transaction occurred or to determine the size of the income. If the likelihood of paying tax varies depending on where a trade takes place — even when the economic gain is identical — questions of tax fairness will inevitably arise.
Loss carryforward rules are another point of contention. Virtual asset prices are highly volatile, meaning an investor can suffer heavy losses one year and turn a profit the next. Under the current tax proposal, however, losses incurred in one year cannot be deducted from gains in the following year.
The United States, the United Kingdom and Australia all allow loss carryforwards for virtual assets. Japan also revised its tax regime to permit a three-year loss carryforward starting in 2026. Proponents argue that loss carryforward is not simply a tax break for investors — it is a mechanism for accurately measuring actual income across multiple periods and assessing a taxpayer's true ability to pay.
Supporters of the virtual asset tax, on the other hand, emphasize fairness relative to wage and business income. Corporations already pay corporate tax on profits from virtual asset trading, they argue, so exempting individuals from tax on virtual asset income is inconsistent. A counter-argument has also emerged: it is inequitable to abolish the financial investment income tax while imposing a tax on virtual asset income.
The government has said it intends to proceed with the 2027 implementation as planned. In the National Assembly, however, bills have been introduced to either scrap the tax or delay it further. People Power Party lawmaker Song Eon-seog filed a bill to delete the tax provisions entirely, while PPP lawmaker Jeong Seong-guk proposed pushing the start date back to January 2030. A petition calling for the abolition of the virtual asset income tax has gathered 50,000 signatures and been referred to the National Assembly's Strategy and Finance Committee.
A law covering virtual asset user protection and unfair trading regulation took effect in 2024. But a basic digital assets act — one that would govern the full scope of digital assets including issuance, distribution and disclosure — has yet to be enacted. Depending on future decisions about whether certain virtual assets qualify as securities, and on the emergence of new transaction types, the tax framework may well need to be revised again.
"Na Yu-jeong" is a column that explains useful policy information in plain language. It examines the background behind policy proposals, the significance of changes, and who can use them, when and how.
fact0514@heraldcorp.com
