Japan Shifts to Recognize 'Virtual Asset Losses'... Korea Alone Clings to Outdated Tax Law
With implementation scheduled for January, South Korea maintains a structure that does not allow 'loss carryover deductions' (a system deducting the previous year's losses from the following year's profits), meaning taxpayers must pay even if they lost 100 million won and earned 3 million won from virtual assets. This stands in stark contrast to advanced nations like the U.S. and Japan.
Under current law, the basic deduction for virtual assets is 2.5 million won per year. Ahead of the 2024 general election, the ruling Democratic Party pledged to raise this limit to 50 million won. At the time, Policy Committee Chair Jin Seong-jun emphasized that this was a promise to the people and a party platform that could not be lightly overturned, yet the pledge was scrapped within a year. Following the abolition of the financial investment income tax in December 2024, domestic stock investors now enjoy capital gains tax exemptions, whereas virtual asset investors remain subject to the 2.5 million won deduction limit.
Contradictions in inter-ministry discord and an outdated classification system have emerged, revealing differences in stance among government agencies. The Ministry of Economy and Finance and the National Tax Service have established a tax framework by classifying virtual asset income as 'other income'—temporary and accidental income similar to lottery winnings or slot machine profits. However, the Financial Services Commission (FSC) is pushing for the introduction of spot virtual asset ETFs and improvements to investor convenience, in line with the Lee Jae-myung administration's state agenda of building a digital asset ecosystem.
Changes in the market environment since the legislation have also played a background role. When the Ministry of Economy and Finance first unveiled its virtual asset taxation plan in July 2020, Bitcoin was valued at just one-tenth of its current level. Although Bitcoin prices surpassed $120,000 in October, causing the market size to expand rapidly, the National Assembly chose to delay taxation three times rather than improve the system.
The first tax filing for virtual assets under the current system will take place in May 2028, coinciding with the 23rd National Assembly election period. The National Tax Service held the first meeting of its advisory committee on the 24th to review potential tax appeals and began formulating countermeasures. On the 3rd of next month, a debate on virtual asset taxation hosted by Rep. Moon Jin-seok will be held at the National Assembly.
The taxation of virtual assets is intrinsically linked to the question of how the nature of these assets is defined.
