Virtual Asset Taxation

Tax system for income from trading, holding, and transferring virtual assets and inheritance and gifts, and Korea's taxation framework scheduled to take effect in 2027

Virtual Asset Taxation

Overview

Virtual asset taxation is a system that imposes taxes on income generated from the trading, holding, and transfer of virtual assets such as Bitcoin and Ethereum, as well as on inheritance and gifts. Korea has prepared a plan to classify virtual asset investment income as other income and separately tax amounts exceeding KRW 2.5 million per year at a 20% rate (22% including local income tax), but implementation has been postponed several times and is scheduled for 2027. Unlike traditional financial assets, virtual assets involve complex rights and obligations and valuation standards, so the scope of taxation, aggregation of gains and losses, and detection of overseas transactions remain major issues.

Key Details

Background

As the virtual asset market grew, discussions on the need to address the taxation gap on trading profits gained momentum. Through the 2020 tax law revision, Korea established a basis for virtual asset exchanges to submit transaction records, and through the 2021 Income Tax Act revision, it decided to implement taxation of virtual asset investment income starting in 2022. Since then, citing insufficient preparation by the industry and market and inadequate taxation infrastructure, implementation was postponed to 2023, 2025, and again to 2027.

Taxable objects and scope

In Korea, income that individuals earn by transferring virtual assets or through lending, staking, etc. is discussed as taxable. Generally, this includes capital gains from selling virtual assets, income received in exchange for virtual assets, and economic benefits acquired through mining, airdrops, etc. However, valuation gains from simple holding are not subject to current income tax, and corporations treat virtual assets as assets under the Corporate Tax Act and reflect valuation and disposal gains and losses. Business income of virtual asset service providers and investment income of individual investors are handled separately.

Tax rates and deductions

For individual investment income, the structure is scheduled to apply separate taxation at a 20% rate after a basic deduction of KRW 2.5 million from annual virtual asset income, plus a 2% local income tax, for an effective rate of 22%. Because it is a separate taxation method that is not combined with other comprehensive income, progressive tax rates for high-income earners do not apply. On the other hand, the fact that losses cannot be aggregated with other income or carried over to other years has raised equity concerns.

Reporting and payment

Once taxation takes effect, investors must report and pay virtual asset income during the comprehensive income tax filing period in May of the following year based on annual transaction records. Domestic virtual asset service providers must submit users' transaction records to the National Tax Service, and transactions using overseas exchanges may be subject to overseas financial account reporting or overseas income reporting. Transfers between exchanges, wallet transfers, and use of decentralized exchanges make it difficult for tax authorities to grasp the full flow, which is cited as a challenge to securing effectiveness.

Inheritance, gifts, and other taxes

Virtual assets are also regarded as assets with property value and are subject to inheritance tax and gift tax. They are valued based on the market price at the time of inheritance or gift, but if there is no exchange market price or valuation is difficult, appraisal, etc. is used. Regarding value-added tax, taxation may become an issue for brokerage and operation services during virtual asset transactions rather than for the transactions themselves, and treatment may differ depending on whether they are deemed equivalent to financial investment products.

Key issues

The biggest issue is whether loss aggregation and carryforward of losses are allowed. There are criticisms that, unlike financial investment income such as stocks and funds, virtual assets are highly volatile, and if losses cannot be carried forward, tax equity suffers. Also under discussion are how to identify records of overseas exchanges, peer-to-peer transactions, and DeFi use; how to apply valuation standards when virtual asset prices fluctuate sharply; and how to classify income from mining, airdrops, and staking rewards.

Latest trends

In the 2024 tax law revision discussions, a plan to further postpone the implementation of taxation on virtual asset investment income by two years to 2027 was pursued, and as of 2025, Korea's virtual asset income tax is being prepared on the premise of implementation on January 1, 2027. The National Tax Service and the Ministry of Economy and Finance are working on institutional improvements to standardize data submitted by exchanges, exchange overseas transaction information, and enhance filing convenience. Internationally, the OECD's Crypto-Asset Reporting Framework (CARF) is scheduled to be fully implemented from 2027, so the exchange of virtual asset transaction information between countries is expected to expand. In 2025, along with discussions on institutionalizing virtual assets, tax equity, allowing loss aggregation, and measures to protect small and medium-sized investors emerged as major agendas in political circles and the industry.