Virtual Asset Taxation Delayed by Two More Years... "Loss Carryforward Allowed for Up to Three Years"

Deputy Prime Minister and Minister of Finance and Economy Lee Hyeongil reads a statement at a briefing on virtual asset taxation at the Government Complex Seoul in Jongno-gu, Seoul, on the 5th. From left: Yoo Youngjun, director general for digital finance policy at the Financial Services Commission; Lee; and Jo Manhee, director general of the Tax and Customs Office at the Ministry of Finance and Economy. Ministry of Finance and Economy

The government has decided to postpone taxation on income from virtual asset investments, which was scheduled to take effect next January, by a further two years, until 2029. It will also pursue supplementary measures allowing losses to be carried forward for up to three years, the most contentious issue, so that gains and losses can be aggregated over a set period for tax purposes.

The Ministry of Finance and Economy said at a briefing on virtual asset income taxation at the Government Complex Seoul on November 5 that it would consult with the National Assembly to pursue these measures. The ministry plans to make a final decision on revisions to the tax laws that would shift the start of taxation from January 2027 to January 2029 and allow losses to be carried forward for three years, following discussions this month at the Tax Subcommittee of the National Assembly's Finance and Economy Planning Committee. At the briefing, Deputy Prime Minister and Minister of Finance and Economy Lee Hyungil said, "This decision was made after comprehensively considering concerns that the domestic market could be placed at a relative disadvantage compared with overseas markets, as well as views that changes resulting from the enactment of the Digital Asset Act should be reflected in the tax system."

Under the virtual asset tax, income from virtual asset investments exceeding KRW 2.5 million is classified as other income and taxed at a rate of 22%, including local income tax. The tax was introduced through a 2020 revision to the Income Tax Act and was originally scheduled to take effect in January 2022. However, amid criticism over inadequate tax infrastructure and opposition from investors, its implementation was postponed three times, to 2023, 2025 and 2027, with a start date of January 1 next year set. The government maintained its principle of "taxing virtual asset income early next year" and did not include a proposal to postpone the tax in its tax code revision bill in July. However, after shifting to a more cautious stance last month, saying it would hear from stakeholders, it ultimately decided to delay implementation.

Lee said, "I take seriously the fact that, after implementation was postponed three times, we are delaying taxation once again," adding, "We will use the next two years of preparation to ensure that virtual asset taxation is implemented without disruption in 2029."

The government cited "inadequate tax infrastructure and tax equity" as reasons for the additional delay. Currently, tax authorities face difficulties determining the acquisition cost of assets when investors use overseas exchanges. The agreement on the Crypto-Asset Reporting Framework (CARF), which is intended to address this issue, will take effect next year, but the United States, the largest market, will not participate until 2029.

Lee said, "Given that virtual asset information exchange with the United States will begin in 2029, some believe that taxing assets immediately could put the domestic market at a relative disadvantage compared with overseas markets." He added, "This adjustment to the implementation date is intended to improve the effectiveness of taxation on domestic and overseas transactions and equity among taxpayers, and to establish a reliable and stable tax base."

The government will also allow losses to be carried forward for up to three years, addressing the controversy over tax equity with tax-exempt stock income. This reflects expert views that, given the high price volatility of virtual assets such as cryptocurrencies, it is reasonable to make an exception allowing gains and losses to be aggregated over a set period for tax purposes. For example, if an investor incurs a loss of KRW 40 million in the first year and earns KRW 10 million annually over the next three years, the actual net result is a loss of KRW 10 million, so no tax would be due. Under the current system, only gains and losses incurred in the same year can be offset, and remaining losses cannot be carried forward. As a result, someone who incurs a loss of KRW 40 million in the first year and earns KRW 10 million the following year would have to pay tax on KRW 7.5 million, after deducting the KRW 2.5 million basic allowance, despite having an actual net loss of KRW 30 million.

Major economies, including the United States, the United Kingdom and Japan, also allow losses to be carried forward. Japan is also set to allow virtual asset investment losses to be carried forward for three years from 2028. Lee emphasized, "We will work to ensure that the loss carryforward deduction is addressed alongside the postponement measure during this regular session of the National Assembly, so that it is no longer a point of controversy in virtual asset taxation."

The government plans to establish a public-private working group on digital asset taxation and actively incorporate private-sector perspectives into future policymaking. Lee said, "Through this working group, we will reflect industry views on the growth of the digital asset sector while preparing for the introduction of taxation, including rationalizing the tax system, reviewing tax standards for various transaction types and making filing more convenient." He added, "We will convene the working group's inaugural meeting as soon as possible, hold intensive discussions through the first half of next year, and develop measures to improve the system. Any matters requiring legislation will be submitted to the National Assembly during its regular session next year." Detailed tax standards are scheduled to be announced in the first half of 2028.

This content was produced with the assistance of AI translation services.