South Korea will begin taxing cryptocurrency gains at a combined rate of 22% from Jan. 1, 2027, ending expectations that the long-delayed measure could be postponed for a fourth time.
Summary
- Annual crypto gains above 2.5 million won will become taxable as “other income.”
- Investors will pay 20% national tax plus 2% local income tax on gains exceeding the allowance.
- Critics warn that the absence of loss carryforwards could push trading toward offshore platforms.
- A pending opposition bill could still repeal the provisions before the rules take effect.
South Korea confirms crypto tax launch
Deputy Prime Minister and Finance Minister Koo Yun-cheol confirmed the implementation schedule during a National Assembly Finance and Economy Planning Committee meeting on July 29.
“We are pushing forward with the plan to tax cryptocurrency starting next year as scheduled,” Koo said.
Under the Income Tax Act, income earned by transferring or lending virtual assets will be classified as other income. Annual gains exceeding 2.5 million won, or about $1,740, will face a 20% national tax. A local income tax raises the combined rate to 22%.
Investors whose annual gains remain below the threshold will owe no tax under the framework. Taxpayers are expected to file their first returns in May 2028 for income earned during 2027.
The government first approved the levy in 2020 and planned to introduce it in January 2022. Lawmakers initially postponed implementation until 2025 before a December 2024 amendment moved the deadline to 2027. South Korea’s National Assembly approved that latest delay through revisions to the Income Tax Act.
Loss rules raise offshore trading concerns
People Power Party lawmaker Kim Sang-hoon questioned the tax design during the committee meeting, arguing that investors would not be allowed to offset losses against gains earned in later years.
Kim warned that the restriction could encourage traders to move activity away from domestic exchanges, including Upbit, Bithumb, Coinone and Korbit. Possible alternatives include overseas centralized exchanges, decentralized finance platforms and peer-to-peer markets.
Such a shift could reduce trading volume and tax visibility inside South Korea. Kim argued that implementation should wait until the OECD’s Crypto-Asset Reporting Framework is fully operational, allowing authorities to exchange tax information across borders.
Koo acknowledged the concern but said moving virtual assets into a capital-gains framework would require a broader review of South Korea’s tax treatment of financial markets. He left open the possibility of revising the system after authorities collect operational data.
A separate opposition bill introduced in March seeks to remove crypto income from the Income Tax Act entirely. Lawmakers referred the proposal to a subcommittee on July 29, meaning repeal or another delay remains legally possible before the end of 2026.
Crypto policy develops beyond taxation
The tax confirmation comes as South Korea considers a broader regulatory framework for digital assets and stablecoins.
Hashed Open Research and the Solana Policy Institute called for interim stablecoin licensing guidance in a policy report published July 29. The recommendations include temporary rules covering issuance, payments, permitted activities and foreign-issued tokens while lawmakers negotiate the Digital Asset Basic Act.
The proposals are advisory and do not change existing law. However, the report argues that waiting for the complete legislation could leave businesses without clear requirements for issuing or using won-backed stablecoins.
South Korea is also expanding state-backed investment in technology. As crypto.news previously reported, the government approved plans for a 20 trillion won investment account under the Korea Investment Corporation.
Unlike KIC’s existing overseas-focused portfolio, the new account can invest domestically in artificial intelligence, data centers and other industries considered strategically important.
What the tax means for US investors
The Korean framework differs from the US approach, where the Internal Revenue Service generally treats digital assets as property. US taxpayers can use capital losses to offset capital gains, subject to the applicable tax rules and reporting requirements.
South Korea’s lack of loss carryforwards could therefore leave some active traders with a less flexible tax position than US investors. The direct tax applies to income covered by Korean law, but US investors using Korean platforms should still monitor whether exchanges change access, reporting requirements or available products before 2027.
Domestic exchanges must now prepare their reporting infrastructure, while lawmakers consider the repeal bill and possible changes to loss treatment. Unless the National Assembly intervenes, the 22% levy will take effect on Jan. 1.
