South Korea Postpones 22% Crypto Tax to 2029, Adds Loss Carryforward

Finance and Economy Minister Lee Hyeong-il announced on Thursday that South Korea’s government intends to postpone its taxation of cryptocurrency profits for an additional two years until 2029, marking the fourth postponement of the levy since it was enacted.

The tax is currently set to become effective in January. To delay it, the National Assembly needs to amend the Income Tax Act prior to that date. Lee stated that the government will request lawmakers' approval in the current regular session.

Lee said at a press briefing in Seoul: “It weighs heavily on me to propose another delay after the tax has already been postponed three times.”

The tax was enacted in 2020 with an intended start in 2022. It subsequently got delayed to 2023, 2025, and 2027 because authorities admitted that tax systems and safeguards for investors were insufficient.

Waiting on U.S. data

The primary cause of this latest postponement is a lack of data on overseas transactions. If investors transfer tokens acquired overseas to a South Korean exchange, that exchange might lack the purchase price record necessary to compute the taxable profit.

This data void will be resolved in 2029, when South Korea and the US start sharing information through the OECD-supported Crypto-Asset Reporting Framework (CARF). According to the government, levying the tax earlier could place South Korea's domestic crypto market at a disadvantage.

Lee said: “Once we begin receiving cryptocurrency transaction data from the United States in 2029, we will have enough information to tax investors who use US exchanges on the same basis as those who trade in the domestic market.”

The government additionally referenced the necessity to synchronize the tax with the draft Digital Asset Act, which would establish guidelines for digital asset firms and enhance investor safeguards. South Korea's comprehensive crypto regulatory structure has progressed on multiple avenues, such as the Bank of Korea's effort to incorporate stablecoins into foreign exchange legislation.

Trading platforms, investors, and legislators had advocated for additional preparation time, with exchanges stating that unclear reporting standards delayed system development and testing.

What the 2029 tax would look like

The tax rate remains unchanged. Individuals would owe 22%, inclusive of local income tax, on annual net profit exceeding 2.5 million won (roughly $1,869) from transactions such as selling or lending digital assets like bitcoin.

A novel element is a suggested three-year loss carryforward. Under existing law, only losses within the same year can counterbalance gains, meaning an investor might be liable for tax in a positive year despite having lost more the previous year.

According to the proposal, losses incurred in 2029 could be used to reduce gains until 2032. Losses that occurred before the tax becomes effective would not qualify, the government stated, explaining that crypto price instability motivated the adjustment.

The finance ministry noted that the carryforward aligns with analogous approaches in the United States and Britain. It added that it would collaborate with the Financial Services Commission to expedite the digital asset legislation.

The government intends to utilize the additional two-year period to gather overseas transaction records and evaluate them together with domestic tax information. A task force comprising industry members, specialists, and government officials will assess tax regulations for various transaction categories and methods to streamline filing during the first half of 2027.

Should the assessment indicate that additional legislation is required, the government aims to present amendments in the National Assembly's 2027 regular session. Comprehensive tax guidelines are scheduled for the first half of 2028.

This declaration prolongs a tax-exempt period for South Korea's many retail crypto investors that was initially set to expire in 2022. The realization of the 2029 timeline relies on the Assembly's approval of the amendment in the coming months and on the punctual commencement of the U.S. data sharing.