On the 6th, the government issued an amendment to the enforcement decree, which will be a detailed guideline regarding the taxation of cryptocurrency income tax, which will take effect from 2022.
According to the enforcement decree, it is expected that investment, gift, and inheritance using mainstream cryptocurrencies such as Bitcoin and Ethereum will be sufficiently taxable. However, transactions using cryptocurrencies or decentralized exchanges that are not listed on domestic exchanges are likely to remain taxable.
The main contents of the amendment to the 2020 tax law enforcement decree announced by the Ministry of Strategy and Finance have been summarized.
1. What is taxable and how much should I pay?
Profits generated in the process of buying and selling cryptocurrency, gifts received in cryptocurrency, and inherited assets are subject to tax. The Ministry of Science and Technology decided to include the transaction income of virtual assets in’other income’ under the income tax law, taking into account international accounting standards and domestic legal systems. From January 1, 2022, those who make money from cryptocurrency investments must pay 20% of the annual profits exceeding 2.5 million won as other income tax.
2. How do I pay taxes on cryptocurrencies bought before January 1, 2022?
You can think of the sale price of the cryptocurrency minus the acquisition price as trading profit. The key is how to determine the acquisition price, and the acquisition price of the cryptocurrency held before January 1, 2022 is the larger of the market price at December 31, 2021 and the actual acquisition price. From January 1st, the price purchased at the exchange is the acquisition price.
3. What is the concept of’the market price at the time of December 31, 2021′? Cryptocurrencies have different prices for each exchange?
All domestic cryptocurrency exchanges must report virtual asset business operators to the financial authorities under the Special Financial Information Act (Special Act) by September 2021. Among the exchanges that have completed the declaration, the exchanges designated by the Commissioner of the Internal Revenue Service will disclose the price based on the cryptocurrency price every day. The market price of virtual assets as of December 31, 2021 is determined by the average of the prices disclosed by these exchanges at 00:00 on January 1, 2022.
4. How to determine the market price of cryptocurrencies that are not listed on domestic exchanges? What if you inherit or donate with such coins?
In addition to the exchange, there are other industry operators who report as virtual asset operators under the Special Act. If any of these places handle the cryptocurrency, it is based on the published price there. An official of the Ministry of Materials explained, “In the case of virtual assets that are difficult to calculate a reasonable base price because they are not handled in Korea, we will refer to the prices of data providers such as CoinMarketCap or overseas exchanges.” It means that taxes are paid somehow.
5. When do I pay cryptocurrency transaction income?
For domestic residents, the payment is made once a year, in May of each year. The trading income of non-residents such as foreigners is withheld by the virtual asset exchange.
6. How do I know if I am paying taxes for the actual earnings I earn?
Cryptocurrency exchanges are required to submit quarterly and yearly transaction details of exchange users to the government from January 1, 2022. The contents of the revision of the Enforcement Decree of the Income Tax Act were included.
7. When using a decentralized exchange that does not submit transaction details to the government because it does not report a virtual asset business, how do you check whether or not you pay taxes?
An official of the Ministry of Materials said, “Because the virtual transaction tax is reported and paid, it is of course necessary to pay when individuals earn profits through coin transactions,” he said. Yes, the National Tax Service will also try to minimize taxation blind spots.”
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