Investors seek workarounds as digital asset tax looms

Spot gains face 22% rate, but offshore perpetual futures sit in a tax blind spot

Authorities can track overseas transactions but lack legal basis to tax them

NTS plans to issue taxation notice in November; industry calls for system overhaul first

Created using ChatGPT. [Captured from X (formerly Twitter)]
Created using ChatGPT. [Captured from X (formerly Twitter)]

How to avoid the 2027 virtual asset tax. The short answer: "Buy a 1x long on an overseas exchange."

With South Korea's digital asset tax set to take effect next year, a growing number of investors are circulating strategies to sidestep the levy by trading offshore perpetual futures instead of holding spot crypto. The approach exploits a gap in the current income tax law: while gains from buying, selling or lending spot coins will be taxed, profits from overseas crypto futures fall outside the scope of the legislation. The industry, meanwhile, is warning of capital flight and calling for a delay to allow time for a proper regulatory framework.

According to industry sources Wednesday, a strategy dubbed the "1x overseas exchange futures buy method" has been spreading through investor communities. Rather than purchasing bitcoin on a domestic exchange, investors are advised to open a long position on the perpetual futures market of overseas platforms such as Binance or Bybit, with leverage set at 1x.

The mechanics are straightforward. An investor puts up 1 million won ($746) as margin to buy 1 million won worth of bitcoin futures at 1x leverage. If bitcoin rises 10 percent, the net return — after costs — is roughly 100,000 won, mirroring the price exposure of holding 1 million won in spot bitcoin.

Under the current income tax law, next year's taxable events will be limited to gains from selling or lending spot virtual assets. After deducting the basic allowance of 2.5 million won from annual income, a combined rate of 22 percent — comprising 20 percent income tax and a local income tax surcharge — will apply. Because Korea's income tax system follows an enumeration principle, taxing only income categories explicitly listed in the law, profits from offshore perpetual futures currently occupy a blind spot. Tax authorities have said they can only enforce what the law explicitly prescribes.

Perpetual futures investing does differ from holding spot assets in meaningful ways. Holders of perpetual futures positions pay or receive a funding rate while the position is open, which can cause actual returns to diverge from spot performance. Major exchanges including Binance currently apply a base interest rate of 0.01 percent per eight-hour period when calculating funding fees. There is also the risk of forced liquidation if margin falls below the maintenance threshold.

Jo Yun-seong, a senior researcher at Tiger Research, said the funding fee burden is "manageable in normal market conditions where price divergence is not large," but cautioned that "in periods of extreme volatility — like Oct. 11 last year — the cost burden is significant and liquidation risk must be watched carefully."

Concerns are also mounting that the tax gap could accelerate the migration of domestic investors to overseas platforms. Because Korean exchanges offer only spot trading, investors looking to reduce their tax burden may turn to overseas digital asset markets that handle a wide range of derivatives, including equity, raw materials and prediction products. Posts asking whether assets should be moved to foreign exchanges before the tax takes effect have already appeared across SNS platforms.

One industry official said the fact that avoidance strategies are already circulating before the tax even takes effect "is itself a signal of trading volume flight," adding that "demand to avoid taxes is flowing toward products unavailable domestically, and once taxation actually begins, the pace of users moving to overseas exchanges will accelerate."

Capital outflows are already being documented. Analysis by Tiger Research shows that the intensity of net overseas outflows relative to domestic trading volume rose from minus 0.5 percent in the fourth quarter of last year to 0.6 percent in the second quarter of this year. Jo said that "if futures investment strategies spread further, domestic investors will have even greater incentive to leave the local market."

Some analysts project that derivatives such as futures could eventually be brought into the tax net if the Crypto-Asset Reporting Framework expands the exchange of overseas transaction data. However, doing so would first require clarifying the legal classification of digital asset futures and establishing a statutory basis for taxing income from such transactions. Even if capital gains tax — the regime applied to conventional overseas derivatives — were extended to crypto futures, the rate could differ from the 22 percent applied to spot coin gains, which are taxed as miscellaneous income.

Tax equity with domestic equities remains another unresolved issue: retail shareholders currently pay no tax on stock trading gains. Kim Woo-cheol, a professor at the University of Seoul's department of tax studies, said "the tax equity problem with stocks is now too large to ignore," and recommended that "the overall financial investment income tax system needs to be overhauled so that stocks and crypto can be taxed rationally within a single framework."

National Tax Service Commissioner Lim Gwang-hyeon told a National Assembly audit of the Finance and Economy Planning Committee at Government Complex Sejong on Tuesday that the agency is "preparing to be able to issue the digital asset taxation notice around November." The schedule is one month later than the October timeline originally discussed. The delay has led some in the industry to speculate that a postponement of the digital asset tax could be taken up during year-end deliberations on the budget and tax law amendments.


kyoung@heraldcorp.com