Surviving the 22 percent tax
The Ministry of Economy and Finance announced a tax code revision for 2020 on July 22. In June, Finance Minister Hong Nam-ki said, “A tax on cryptocurrency will be announced as part of the tax revision to be announced in July.” According to the revision, 20 percent, or 22 percent including local taxes, will be levied on cryptocurrency starting in October 2021. The classification of the income for cryptocurrency, which was long disputed, has been categorized as other income. #Classified as other income The ministry announced that it would classify income from cryptocurrency as other income considering the comprehensive issues on the existing taxation system for income. The standard for other income under the current taxation system is defined as income generated from intangible assets like trademark rights. The amount of income on cryptocurrency has been defined as the subtraction of the price assigned at the time of selling and acquisition value at the time of purchase. The standard for the settlement period is based on annual income. But for people living abroad, the net of applicable taxes could be levied if acquisition value isn’t properly calculated on foreign cryptocurrency. #Tax exempted for income below 2.5 million won The tax rate on cryptocurrency has been concluded as 20 percent. But income generated from cryptocurrency that is below 2.5 million won ($2,085) is exempted from tax. Considering the six months grace period for the legislation to enforce the revision of the act on reporting and using specified financial transaction information, the taxation system will be applied in October 2021. #Need for the government guideline In regard to the taxation system, Kwon In-wook, an IW tax office accountant, said, “Since there’s just an outline, exhaustive inspections are required. There needs to be the government’s proposal on gradual guidelines.” The difficulties of dividing residents and non residents is an example because some foreigners may actually not be non residents. #How to save taxes The strategy to save taxes is a key interest of cryptocurrency asset holders. Kwon said, “The representative method to save tax within the legitimate range is to sell before the implementation of the taxation system and to rebuy it at a high price. That way, acquisition value is set based on the margin of the high price upon purchase and selling price after October 2021. “When purchasing coins at a foreign cryptocurrency exchange, long-term investors should prepare evidence data because the acquisition cost could be set as before October 2021, even if the taxation system kicks off after that period.” “Transactional information at an exchange is the most essential expenses. Withdrawal and transmission fees are all included as necessary expenses. A procedure of receiving transactional information and proving it is necessary.” Kwon added. “If one bought a coin for 90 won at a foreign exchange and later sold it for 100 won, the individual needs to vindicate [the price] as 90 won to be able to efficiently save taxes.