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2022.08.26

Briefing on the “2022 Tax Reform Plan” (Updated August 2022)

[Executive Summary]

  • The Ministry of Economy and Finance has officially announced the “2022 tax reform plan.” Pertaining to virtual assets, there are three major implications: ① Tax deferral on virtual assets for two years, ② New obligation for VASP corporate entities to submit virtual asset transaction details, ③ Establishment of special cases concerning limitation period for imposition of national taxes on gift or inheritance through virtual assets (even after 10 years have passed, tax can be imposed within a year from the date of recognition).

 

On July 21st, the Ministry of Economy and Finance officially announced the “2022 tax reform plan.” The Yoon Suk-Yeol government’s taxation policies on virtual assets were discussed in the previous update. To legislate the taxation policies, the ruling party and the government confirmed and announced a detailed amendment proposal for tax-related laws such as the Corporate Tax Act and the Income Tax Act. Once the announced plan is approved at the Vice Minister Meeting and the State Council Meeting after 17 days of legislation notice, it will be submitted to the regular session of the National Assembly by September 2nd. Any bills submitted to the National Assembly can only be finalized after they are debated, voted on, then passed by the plenary session. Tax reform bills are generally passed by the plenary session in early December, after which the government promulgates and enforces the new law. Therefore, the specifics of the tax reform bill below have not been finalized and may change in the course of the bill’s passage. However, it is still important to discuss the bill for it provides the basic direction of the tax reform which may take effect from the very first day of next year if it is passed by the plenary session in early December.

 

A. Two-year Tax Deferral on Virtual Assets (Amendments to the Corporate Tax Act and the Income Tax Act)

According to the current law, income from transfer or lending virtual assets will be taxed at a 20% tax rate (22% including the local tax) starting January 1st, 2023, for the remaining amount after a basic deduction of 2.5 million KRW. The amendment will defer the implementation to January 1st, 2025. However, the bill left many disappointed since it will not deliver the government’s promise to raise the basic deduction to 50 million KRW as is the case for other financial incomes such as stocks.

 

B. Establishment of Obligation for VASP Corporate Entities to Submit Virtual Asset Transaction Details (Amendment to the Corporate Tax Act)

Starting on January 1st, 2023, corporate entities that transfer or lend virtual assets are obligated to submit transaction details to the head of a local tax office within 2 months from the end of each quarter. This, however, applies to all registered VASPs under the Act on Reporting and Using Specified Financial Transaction Information, not limited to virtual asset exchanges. As for individuals, the already amended Income Tax Act, which is set to be enforced on January 1st, 2023, obligates them to submit virtual asset transaction details.

 

C. Establishment of Special Cases Concerning Limitation Period for Imposition of National Taxes on Gift or Inheritance Through Virtual Assets (Framework Act on National Taxes)

In Korea, the tax must be imposed within 10 years from the day on which the inheritance or the gift was made. However, in order to prevent tax evasion through virtual assets, a special case has been established; those who received the inheritance or the gift through virtual assets (limited to the assets exceeding 5 billion KRW) without going through a domestic VASP can be taxed for 1 year from the date of recognition.

 

According to the plan, VASPs must submit virtual asset transaction details once relevant regulations are set in place. Furthermore, special cases will be applied to the national tax imposition on virtual assets obtained outside of exchanges to extend its limitation period. The government plans to implement a new tax system for more effective taxation. We advise the related businesses to continuously pay attention to the development and realization of this plan, especially since not only virtual asset exchanges but also wallet service providers are obligated to submit virtual asset transaction details.