Including Overseas in Profit and Loss Aggregation... Staking Also Taxed [Virtual Assets and Taxes] ①

Virtual Asset Taxation Scheduled for January 1 Next Year
Policy Uncertainty Remains Amid President and Ruling Party's 'Taxation Opposition'
Tax Authorities Focus on System Preparation Amid Uncertainty

From January 1 next year, the newly introduced virtual asset taxation policy is drawing investors' attention. In the Korean virtual asset market, where corporate investments are virtually prohibited, most investors are individuals. So far, only the implementation date has been announced, and no specific guidelines on virtual asset taxation have been published, increasing confusion among investors. With the 22nd National Assembly opening soon and President Yoon Suk-yeol and the ruling People Power Party having shifted to a stance of tax 'postponement' since early this year, policy uncertainty remains high. The tax authorities plan to focus internally on completing the system in time for the policy implementation date.

National Tax Service Building Virtual Asset Taxation System

According to the government and the virtual asset industry on the 31st, the National Tax Service (NTS) is building a system in preparation for the virtual asset taxation system to be introduced and implemented from January 1, 2025. The system for reporting and guiding taxpayers regarding their income has been completed. The 'Virtual Asset Integrated Management System,' which aggregates taxpayers' transaction information to compare actual income and tax payment status, is also planned to be established within next year. Currently, a consulting service for the related Information Strategy Plan (ISP) has been commissioned, and once the results come out in June, the 2025 project budget will be applied for accordingly. The NTS plans to distribute comprehensive guidelines to the industry and promote the policy in line with the actual implementation of virtual asset taxation next year.

Under the amended Income Tax Act, virtual asset income will be subject to separate taxation as other income from transfers or lending occurring after January 1, 2025. The income amount is calculated by deducting the acquisition cost, transaction fees, and other incidental expenses from the transfer price. The basic deduction for gains is 2.5 million KRW annually, and the tax rate is 22% (including 2% local income tax). With separate taxation, tax filing must be done by reporting 'other income' during the comprehensive income tax filing period in May of the following year, consolidating gains and losses for that year. For example, if one acquires 1 Bitcoin for 100 million KRW after January 1 next year and sells it for 130 million KRW at year-end, the taxable income is 30 million KRW minus 2.5 million KRW deduction, resulting in 27.5 million KRW. Applying the 22% tax rate, the income tax payable at the May 2026 comprehensive income tax filing would be 6.05 million KRW. However, for virtual assets held before January 1, 2025, the acquisition cost can be calculated as the higher of the market price on December 31, 2024, or the previous acquisition cost.

Individual investors should note that gains and losses must be consolidated regardless of whether transactions occur on domestic or overseas exchanges. Under the Income Tax Act, residents in Korea are obligated to report and pay taxes on all income earned domestically and abroad. For instance, a customer with accounts on the overseas exchange 'Binance' and the Korean exchange 'Bithumb' must include gains and losses from both exchanges when calculating their final taxable income.

However, since the tax authorities must rely on investors' voluntary reporting for transactions through overseas virtual asset service providers during the verification process, concerns about tax evasion remain high. Since 2023, the authorities have included overseas virtual asset accounts under the existing overseas financial account reporting system. For domestic exchanges, transaction details can be verified using aggregated data from operators reported to the Financial Intelligence Unit (FIU). The NTS is aware of these issues. An NTS official stated, "In the case of virtual assets, there is a lack of effective verification methods, but we expect that once the OECD's 'Crypto-Asset Reporting Framework (CARF)' is implemented, automatic information exchange for overseas virtual assets will be possible, which will be helpful." However, the OECD regulation is scheduled for introduction in 2027, making at least a two-year regulatory gap unavoidable. The same issue was pointed out during the National Assembly audit last October by Representative Seo Young-kyo of the Democratic Party, but no changes have been made so far.

The tax authorities also held opinion-gathering sessions last September through the National Tax Administration Forum, emphasizing the need for improvements. At the forum, Professor Kim Beom-jun of the University of Seoul and Professor Kim Seok-hwan of Kangwon National University Law School presented on 'Countermeasures Against Tax Evasion Using Virtual Assets.' They suggested that due to the lack of clear criteria for taxable types and income classification of virtual assets, the risk of tax evasion is high, necessitating tax authorities' response. They also raised the need to establish a verification system for transactions through overseas virtual asset exchanges, which are prone to tax evasion.

Clarification of Criteria Including Taxation Timing for Staking

Unlike trading, the taxation direction for activities with ambiguous criteria such as △mining (generating blocks through complex computer calculations), △hard forks (branching and upgrading blockchains), △airdrops (acquiring virtual assets through events), △staking (depositing for validation), etc., has also been clarified. Although there were initial criticisms about unclear taxation criteria, the amendment to the Income Tax Act has clarified the standards. For example, in mining, the acquisition cost is based on the electricity expenses incurred by the individual during the mining process. Additionally, staking, which is a form of proof of stake involving 'deposits for validation,' now has clear taxation criteria. The NTS plans to tax staking not at the point when individuals receive staking service rewards but at the point when the virtual assets received as staking rewards are transferred and converted into Korean won. An NTS official explained, "According to the 'other income' clause related to virtual assets in the Income Tax Act, income arises from transfer or lending, so if the asset is not transferred or lent, taxable income does not occur." In other words, receiving staking rewards alone does not constitute income. The acquisition cost of staking is considered nonexistent unless incidental costs occur.

However, the taxability of deposit usage fees paid by virtual asset exchanges to customers as interest on deposited funds remains unclear. Domestic virtual asset exchanges do not pay usage fees to customers. Upbit, which has a contract with K Bank, earns interest income on customer deposits but cannot legally pay customers under the name of 'interest,' so it uses the funds for Environmental, Social, and Governance (ESG) activities. However, after the implementation of the 'Virtual Asset User Protection Act' in July, all virtual asset exchanges will be required to pay deposit usage fees to customers. Whether the income customers earn in this process will be classified as 'virtual asset income' is uncertain. It is likely to be classified as other income or interest income, but this is also undecided. Regarding this, the NTS stated, "It is difficult to provide an answer on the income classification of deposit usage fees as there is no authoritative interpretation from the Ministry of Economy and Finance."