South Korea should build a tax filing system linked to cryptocurrency exchanges that automatically calculates investors' acquisition costs and gains before taxation takes effect next year, according to a new report. Because crypto assets move across multiple exchanges and wallets, requiring investors to trace their own transaction histories and compute their taxes could impose a heavy compliance burden.
The National Assembly Budget Office said on the 17th in a report titled "Issues and Challenges in Taxing Virtual Asset Income: Ahead of the 2027 Implementation" that the current framework faces four main issues: limits on identifying taxable income, the need to build filing and payment infrastructure, uncertainty over tax rules for various transaction types, and the scope for recognizing trading losses.
The report said the burden would be especially heavy in the early stages, when individual investors with no experience in voluntary tax filing must calculate and report their own crypto trading gains and losses. Even a single crypto asset is often acquired and transferred repeatedly across several exchanges and wallets, making it difficult for investors to reconstruct their transaction histories, verify acquisition costs and calculate net gains.
Under the current Income Tax Act, crypto income is classified as other income and taxed separately. A 20% rate applies to gains from transferring or lending crypto assets after deducting necessary expenses and an annual allowance of 2.5 million won. Including local income tax, the effective rate is 22%. Residents must calculate their annual crypto income themselves and file and pay the tax in May of the following year.
The budget office recommended linking the tax system to exchanges to reduce the calculation burden on investors. Under the proposal, transaction data held by exchanges would be used to automatically compute acquisition costs and gains and to support the filing process. It also said advance guidance and public outreach should run alongside the rollout to minimize confusion among taxpayers in the early stages.
The National Tax Service has also begun building the necessary infrastructure. In July, the agency created a digital asset division to handle crypto taxation and related work. It plans to complete an integrated virtual asset analysis system, a working title, by the end of this year to analyze crypto transaction data.
Major economies have already put in place systems that use exchange transaction data in taxpayer filings. In the United States, crypto brokers must report proceeds to the Internal Revenue Service on Form 1099-DA for transactions made on or after Jan. 1 of last year, and provide a copy of the same information to taxpayers. In Japan, exchanges provide an annual transaction report listing trade dates, quantities and amounts. Investors enter the data into a calculation program distributed by the tax authorities, which automatically produces the figures needed to determine the tax owed.
Trades routed through overseas exchanges or decentralized exchanges, known as DEXs, remain a challenge because tax authorities have difficulty identifying the income involved. Domestic crypto service providers are required to submit transaction records to the tax authorities, but no such party exists for peer-to-peer trades on DEXs. Over-the-counter trades using cold wallets are also difficult to trace to beneficial owners, raising the risk that they could be used to avoid taxes. Overseas exchanges have no obligation to submit or report transaction records to Korean tax authorities, limiting authorities' ability to track trades.
The budget office said that "to address the difficulty of identifying income on overseas exchanges, automatic exchange of transaction information among participating countries is set to begin in 2027 under the Organisation for Economic Co-operation and Development's Crypto-Asset Reporting Framework." It added that "because 29 countries including Canada, Switzerland, Singapore and Hong Kong will begin their first information exchange in 2028 and the United States in 2029, differences in national timelines could leave a gap in information sharing for some time." (See related coverage on pages 1 and 2 of the Sept. 14 edition.)
