[Part 2] 13 Questions and 13 Answers about virtual asset tax in Korea

Today, we will look at the taxation of virtual asset in Korea with 13 keywords

7. Local income tax 10%
But actually, the 20% tax isn’t everything.
Taxation at 20% does not take into account the 10% local income tax.

What is the local income tax?
The 20% to be charged on the coin market margin is a national tax.
The amount equivalent to 10% of the 20% national tax is deducted further under the name of local income tax.
In short, income tax is a national tax, so it is paid to the state, and local tax is a tax paid to local governments.

Therefore, when considering local income tax, which is 10% of national tax, the tax rate is 22% instead of 20%.
That is, 10% of $1,554, or $155, must be paid in local income tax.
So the total tax amount is $1,709.

8. Loss carryover deduction
Investments can be lost.
For example, if you bought it for $10,000 in 2022 and then went down and sold it for $5,000, you lost $5,000.
But after I sell it, will it rise again?
If you can’t stand it, buy it again for $7,000 in 2023, sell it for $15,000, and make a profit of $8,000.
That’s a $5,000 loss in 2022 and a $8,000 profit in 2023.

So, since it’s a loss in 2022, of course there is no tax, and in 2023, will you pay taxes on $8,000?
Or will you only pay tax on $3,000 in 2022, excluding $5,000 in losses?
When profits are made, the government does not deduct losses.
So, in 2023, you pay taxes on $8,000 in profits.

9. Other income
Money earned from virtual assets is taxed not as capital gains, but as other income.

This is the case for other income under the income tax law.
Typical examples are lottery winnings, winning prizes, penalties, and income from the transfer of intangible assets such as the transfer of industrial property rights.
On the other hand, capital gains are income from the transfer of real estate, stocks, and derivatives.

What you earn with virtual assets looks similar to stocks,
Coins are not capital gains like stocks, but why are they classified as other income?

The Ministry of Economy and Finance explains:
This is because the International Accounting Standards Committee classifies virtual assets as intangible assets, and in the tax law, capital gains from intangible assets are classified as other income.

If so, will the tax amount be different from those classified as capital gains and those classified as other income?
There is no difference. The calculation structure of other income and capital gains is the same.
Intuitively, the tax amount is the 20% tax rate multiplied by the money I earned.
Whether it is other income or capital gain is simply the difference in classification under the income tax law.

10. Separate taxation
In number 9, you said that you are taxed separately as other income. What is separate taxation here?
To understand correctly, you need to know two things: consolidated taxation and progressive tax rates.

First, consolidated taxation is literally a combined, aggregated taxation.
For example, if your earned income is $10,000 and your Bitcoin income is $10,000,
That is, we apply a tax rate on a total of $20,000.

Second, progressive tax rates. As we saw earlier, the virtual asset tax rate is only 20%.
Whether you make $10,000 or $100,000 in Bitcoin, you are taxed at one rate of 20%.
One tax rate in this way is called the single rate.

On the other hand, with progressive tax rates, the higher the income, the higher the tax rate.

Currently, the progressive tax rates of Korea’s income tax start at 6% and go up to 45%.
If you earn more than $0.9Mil, the tax rate is 45%.

However, if you separately tax it at a single rate of 20%, like the tax on bitcoin, the tax is equally taxed at 20% no matter what income other than the money earned in bitcoin.

If the money earned in bitcoin is comprehensively taxed at progressive tax rates, the tax rate will vary according to the current level of income.

If my annual salary is $90,000, the 35% tax rate is applied. In addition, if I earned an additional $5,000 in Bitcoin, the current income tax rate of 35%, not 20%, is applied to the money I earn with Bitcoin.

11. Report by the end of May every year
So how do I file an income tax? Should I report it myself?
Yes, you must report directly to the IRS by the end of May each year.
Earned income doesn’t pay much attention to tax filing.
Because when you get your salary, the company calls ‘withholding tax’ and pays monthly income tax, and in February every year, the company takes care of the ‘year-end settlement’ as well.
However, the money earned with Bitcoin is different.
This must be reported by the person who made the money.

Doesn’t the exchange do withholding tax? Yeah,
The exchange does not take care of it.

Money earned between January 1st and December 31st must be reported directly by the taxpayer by the end of May of the following year.
Money earned in Bitcoin from January 1, 2022 to December 31, 2022, must be reported by May 31, 2023.

12. Virtual Asset Transaction Statement
What if I don’t file my taxes?
Can the IRS know that I didn’t pay?
From 2022, the exchange is required to submit the transaction statements of the exchange users’ virtual assets to the National Tax Service on a quarterly and yearly basis.

13. If you live as a corporation
How do I pay taxes when a corporation buys bitcoin with free cash?

Starting in 2022, taxation at 20% is when an individual makes money with virtual assets.
When a corporation, not an individual, invests in Bitcoin, there are two major differences.

First, it has been taxed from the beginning, not from 2022.
In the tax law, any money earned as a corporation is unconditionally taxed.

In difficult terms, it is called all-inclusive theory.
It was originally taxed according to the all-inclusive theory.

The corporate tax rate is applied, not the 20% single tax rate.
The corporate tax rate is a progressive tax rate from 10% to 25%.

10% up to ~$178,800,
20% from $178,800 to 17,881,000,
If it exceeds 268,216,000, it is 25%.

If Samsung Electronics buys bitcoin like Tesla, the money earned in coins is taxed in addition to the money earned by selling mobile phones and semiconductors.
Since Samsung Electronics, the tax rate will be taxed at the maximum rate of 25%.

But what if a startup that can’t make money invested in bitcoin?
What if you earned $90,000 in full-time and $89,000 in Bitcoin?
$89,000 +$89,000 combined totals $178,000 corporate income, with a tax rate of 10% for less than $178,800.

In other words, you are taxed 10% on the $89,000 you earn with Bitcoin