[Part 1] 13 Questions and 13 Answers about virtual asset tax in Korea

1. Virtual Asset
Coins like Bitcoin or Ethereum are largely divided into two terms.
First, when it is called as currency like virtual currency or cryptocurrency.
Second, when it is called an asset, such as a virtual asset or digital asset.
For reference, the term virtual asset is used and borrowed from the Financial Action Task Force (FATF).

2. From 2022
Bitcoin taxation begins in 2022. Will you not pay tax on the market margin this year?
For example, let’s say you bought it for $4,000 at the beginning of this year, but it was $10,000 at the end of this year.
Then, the $6,000 market gain in 2021 is non-taxable.
So, for bitcoin investors, it would be advantageous in terms of tax to increase the price a lot this year.

3. Subject acquisition value
So, how are purchases made in 2021 and profits made after January 1, 2022, how are they taxed?
For example, let’s say you bought it for $4,000 this year and sold it for $20,000 the following year.
You earned $16,000 in market margin.
At this time, let’s say that the virtual asset price hit $10,000 on December 31, 2021.
However, the tax is only taxed on the market gains after January 1, 2022.

So, when taxing, it is regarded as buying for $10,000 on December 31 and selling for $20,000, and paying tax only on the $10,000 margin of market capitalization.

The total amount of money earned is $16,000, of which $6,000 is the market capitalization gain in 2021, so there is no tax, and the remaining $10,000 is the market capitalization gain in 2022, so that is the only tax you pay.

But isn’t there a case like this?
“I bought it for $5,000 this year. But the price on December 31st is $3,000. Sold for $20,000 in 2022.”
In other words, the price I bought was higher than the price of December 31, 2021.”

If the price I bought is higher than the market price of December 31, the price I bought is considered the acquisition price.

This is called the’subject acquisition price’ in difficult terms. It means that the larger of the price I bought and the market price as of December 31, 2021 will be subjected into the acquisition price.

4. First in, first out
Then, let’s say you bought 3 bitcoins in a row in 2022.
If you bought the first one for $5,000, the second one for $10,000, and the third one for $15,000, you bought three bitcoins for a total of $30,000, so the average unit price is $10,000.
Let’s say you sold one for $20,000 in 2023.
So, did you sell the first bitcoin bought for $5,000, or the third bitcoin bought for $15,000?

Or maybe they sold one for $10,000 at the average unit price?
This is similar to whether it is a first-in-first-out, last-in, first-out, or total average method, but the tax method calculates the acquisition cost as first-in, first-out.

In other words, the acquisition price is calculated by judging what was bought first as being sold first.
If you apply to the example above, the first thing you bought for $10,000 was sold for $20,000, so you can pay tax on the $10,000 margin.
If it’s a last-in-first-out, you’re selling the last $20,000 you bought for $20,000, so your market margin is $0, and you don’t have any money, so you don’t have to pay taxes.
In this way, the method of calculating the acquisition price is very important in the taxation system.

5. $2,232 (KRW 2.5 million)
Only the amount in excess of $2,232 from the money earned is taxable.
For example, if I earned $5,000, I would subtract $2,232 and only pay tax on $2,768.

6. 20% single tax rate
The tax rate is 20%. (Single tax rate)
Simply put, if you make $10,000, subtract $2,232, and take 20% on $7,768, so $1,554 is tax.