Earnings from Cryptocurrencies Regarded as Miscellaneous Income
The South Korean government is considering applying a tax rate of 20 percent to income derived from cryptocurrencies by regarding it as not transfer income but miscellaneous income, which includes lottery payouts, lecture fees, royalties, and the like.
The Ministry of Economy and Finance decided in the second half of last year to impose income taxes on cryptocurrencies. Then, the Property Tax Division of the ministry made preparations to include related details in this year’s tax law amendment bill. Also, the International Tax Division analyzed the 80 billion won tax imposed on cryptocurrency exchange Bithumb by the National Tax Services.
Recently, the division in charge of the taxation issue in the ministry has been changed to the Income Tax Division. Experts point out that the change was the first step for the government to classify cryptocurrency-based income as miscellaneous income rather than asset transfer income.
At present, miscellaneous income is subject to an expense deduction of 60 percent and a tax rate of 20 percent is applied to the rest. The calculation is simpler than in the case of transfer income, which requires accurate acquisition costs and transfer prices. Still, controversy may arise with regard to acquisition and reference cost calculation and withholding taxation on cryptocurrency exchanges if miscellaneous income taxes are applied to locals’ cryptocurrencies.