Virtual asset tax deferred for two years; plan to allow loss carryforward deductions over three-year periods

Photo caption: Deputy Prime Minister and Minister of Economy and Finance Lee Hyeong-il briefs on virtual asset taxation at Government Complex-Seoul on the 5th.

[Financial News] The government has decided to defer taxation of virtual assets for two years. This is the fourth postponement, following three previous delays. Taxation of virtual assets, originally scheduled to take effect next year, has been postponed until 2029.
The government says it will use the deferral period to overhaul and supplement the tax system, reestablish reasonable tax standards and procedures, and improve tax equity. It has also decided to pursue a plan to allow loss carryforward deductions over three-year periods, taking into account the nature of virtual assets, which are actively traded across borders, and the global adoption of such deductions. The industry noted, “The National Assembly of the Republic of Korea and the government need to present a concrete roadmap to ensure there are no further delays.”
■ Aligning the timing of international transaction-information exchanges
Deputy Prime Minister and Minister of Economy and Finance Lee Hyeong-il held a briefing at Government Complex-Seoul on the 5th and announced the policy of deferring virtual asset taxation, saying, “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.”
Vice Prime Minister Lee said, “Even if the timing of tax implementation is adjusted, the basic tax principle of ‘taxation where there is income’ must be upheld,” adding, “We will use the next two years as a preparation period to ensure that taxation of virtual assets can be implemented smoothly in 2029.”
The government took into account, when deciding to defer taxation, that the exchange of tax information on virtual assets with the United States is scheduled to begin in 2029. Given the active cross-border trading of virtual assets, it judged that countries need to exchange tax information on virtual assets in parallel. Vice Prime Minister Lee said, “Once we begin receiving information on virtual asset transactions from the United States from 2029 onward, we will have sufficient information to tax investors using U.S. exchanges appropriately, just as we do investors in the domestic market,” and added, “The government will actively participate in international discussions on an automatic exchange system for virtual asset information, while linking and analyzing overseas tax data with domestic tax data and expanding tax infrastructure to ensure effective taxation of overseas transactions.”
■ Plan to allow loss carryforward deductions
The virtual asset tax system will also be overhauled to align with tax standards in major countries such as the U.S., the U.K. and Japan. A key measure is a plan to allow loss carryforward deductions over three-year periods. Vice Prime Minister Lee said, “We took into account proposals from experts and others that, given the high price volatility of virtual assets, it would be reasonable to make an exception and allow gains and losses to be netted over a certain period for tax purposes,” explaining, “Major countries such as the U.S. and the U.K. also allow loss carryforward deductions, and we also considered that Japan, which had not allowed them, is shifting its policy toward permitting them.”
However, implementing this plan is likely to require amendments to laws and regulations. Under current law, loss carryforward deductions are not allowed for other income, and income from virtual assets is classified as other income. Vice Prime Minister Lee added, “We will push for the measure to be passed along with the deferral during the regular session of the National Assembly so that loss carryforward deductions do not become a source of controversy in virtual asset taxation. We will establish tax standards for various types of transactions by the first half of 2028 at the latest and explain them fully to the market and taxpayers.” Assuming taxation begins in 2029, the fair market value as of December 31, 2028, is expected to be treated as the acquisition cost for assets acquired before then, when calculating losses and gains.
The Ministry of Economy and Finance and the Financial Services Commission say they will also accelerate work on enacting the Digital Asset Act, which will affect virtual assets.
Industry figures and experts called for a clear legislative and tax roadmap. Hwang Seok-jin, a professor at Dongguk University’s Graduate School of International Information Security, said, “It is reasonable to enact the Digital Asset Act promptly, clarify the legal definitions, and establish the principle that taxation will begin.” Kang Seong-hu, chairman of the Korea Digital Asset Business Association (KDA), stressed, “The main reason taxation has been repeatedly deferred is that investor protection measures comparable to those in the stock market and tax standards reflecting the characteristics of virtual assets have not been established,” adding, “The National Assembly of the Republic of Korea and the government should present a binding legislative framework and roadmap so that taxation can begin as scheduled in 2029.”

[email protected] Kim Jun-hyeok, Han Young-jun Reporter