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South Korean Deputy Prime Minister and Finance Minister Hong Nam-ki (second right) speaks during a briefing on the revised tax code for 2020 at the Government Complex in Sejong on July 20. (provided by the Ministry of Economy and Finance)

Under the revised 2020 tax code announced by the South Korean government on July 22, investors in Bitcoin and other cryptocurrencies will have to pay a 20% tax on the margin of cryptocurrency transactions starting on Oct. 1, 2021.

“Income from cryptocurrency transactions needs to be taxed to ensure it is treated the same as income deriving from other sources, such as stocks and derivatives. Furthermore, those transactions are already being taxed by leading countries such as the US, Japan, and the UK,” the Ministry of Economy and Finance explained. Income from cryptocurrency transactions will be categorized as “other income” under the Income Tax Act.

Beginning on Oct. 1 of next year, the proceeds from the sale of cryptocurrency, minus the principle and secondary expenses (such as fees), will be regarded as “cryptocurrency profit” and taxed at a rate of 20%.

Profits and losses from cryptocurrency transactions will be tallied on a yearly basis and then taxed separately from aggregate taxes. Taxes are waived for up to 2.5 million won (US$2,087) in yearly income.

The market price of cryptocurrency on Sept. 30, 2021, the day before the tax goes into effect, will be assumed to be the acquisition value. Individuals who can demonstrate that they acquired their cryptocurrency for a higher price can use that in the calculation.

Those with tax liabilities are obliged to report and pay taxes on cryptocurrency transaction income once a year, in May. Cryptocurrency exchanges will be instructed to withhold taxes on the profits of foreigners and other non-residents.

The special consumption tax on e-cigarettes will double from its current level of 370 won (US$0.31) to 740 won (US$0.62) per milliliter of nicotine solution. The government explained that is adjusting the tax rate to account for a study that found that 0.8ml of e-liquid is equivalent to a pack of cigarettes in terms of the amount of nicotine released and the number of times smoked.

As a result, the tax on 0.7ml of e-liquid will rise from the current rate of 1,261 won (US$1.05) to 2,521 won (US$2.10), not including VAT. That compares to 2,914 won (US$2.43) in taxes on a pack of 20 regular cigarettes and 2,595 (US$2.17) in taxes for a pack of 20 heat-not-burn cigarettes.

By Lee Kyung-mi, staff reporter

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