The controversy over the taxation of encrypted assets in Korea is again on the rise. Korean MP Park Su-young called on the Government to withdraw the virtual asset-revenue tax, which had been scheduled for 1 January 2027, saying that this arrangement could push more local funds into a secure trading platform overseas.

He indicated that, in the context of the Republic of Korea ' s elimination of tax schemes for some domestic financial investment earnings, a separate tax on the proceeds of encrypted assets would give investors a sense of tax differentials between different asset classes. According to Park, this policy affects approximately 13 million digital asset users, with a clear punitive colour.

The rate is 22%.

Under Korea's current Income Tax Act, the proceeds of transfers or loans of virtual assets will be classified as “other income” from 2027 onwards. Investors are entitled to a basic deduction of 2.5 million won per year, the excess of which is taxed at 20 per cent.

If 2% local income tax is included, the actual tax rate will be 22%. This 2.5 million won deduction corresponds to the basic deduction applicable to foreign equity capital gains.

The Korean Government has previously indicated that it will no longer promote the financial investment income tax that would otherwise cover part of the domestic financial investment earnings. This has also become a central reason to oppose encryption taxes.

The Government continues as planned

Despite the persistent opposition, the Korean Government has not changed the pace of progress. In May this year, Wen Kyung-ho, head of the Income Tax Department of the Korean Ministry of Enterprise Finance, publicly stated that the relevant departments were preparing to implement the tax arrangement in accordance with the established schedule.

The Korean IRS is also preparing guidelines with five major encryption trading platforms, including Upbit Operators Dunamu, Bithumb, Coinone, Korbit and Gopax. The guidelines are expected to be published in 2026 and the first full filing period for 2027 will arrive in May 2028.

This tax arrangement has been extended three times. For many years, Korea has not been able to agree on how and when to tax the proceeds of digital assets.

Opposition claims or exacerbates financial outflows

According to Park, an encryption tax would not divert money back to the South Korean stock market, but could accelerate the flow of wealth abroad. He quoted data that between January and September of last year, about 124 trillion won went to overseas digital asset trading platforms.

The data disclosed by the Korean regulatory authorities also show that in the second half of 2025, the Korean exchange recorded about 90 trillion won of encrypted assets, up from 78.9 trillion won in the first half of the year. The Korea Financial Services Commission attributed part of its activities to transactions such as cross-border arbitrage.

At the same time, South Korea is also strengthening the regulation of cross-border digital asset transfers. The revised Foreign Exchange Transactions Act introduced a new category of virtual asset transfer services, requiring companies engaged in specific cross-border encrypted transfers to register with the Minister of Finance.

The treatment of losses becomes another issue.

In addition to tax rates, the question of whether losses could be carried over was also at the centre of the debate. PARK Su-young criticized the proposed system as taxing investors when they profit, but did not provide for reciprocity when the market fell in terms of losses.

In May this year, a public petition for the total abolition of the tax exceeded the threshold of 50,000 signatures and was automatically submitted to the relevant committees of the Korean Parliament. The petition stated that the 22 per cent tax levied on the profits of encrypted assets in the event of a tax exemption on return on financial investments related to stocks and bonds constituted unequal treatment.

At present, whether this tax arrangement will land as scheduled in January 2027 is still dependent on whether the Korean Congress will amend the Income Tax Act before its implementation. The National Forces Party (NFP) in the ruling camp is still pushing for abolition or a further extension.