Korea's crypto regulation at crossroads as rules tighten, tax delay proposed

A representation of virtual cryptocurrency bitcoin / Korea Times photo by Shim Hyun-chul

Korea’s cryptocurrency regulatory framework is reaching a crossroads, with rules tightening on one front while efforts are underway to delay taxation on investment gains.

Financial authorities plan to expand the “travel rule” for crypto transactions to cover all transfers, requiring exchanges to collect and provide transaction information, while also tightening registration and screening requirements for virtual asset service providers.

Meanwhile, a bill has been proposed to postpone the planned taxation of crypto investment gains by three years, reigniting debate over when such taxes should take effect.

According to the Financial Services Commission, the country’s financial regulator, an amendment approved Tuesday by the Cabinet will extend the travel rule to all crypto transfers, including those below 1 million won ($705). Under current rules, exchanges are required to share transaction information only for transfers worth at least 1 million won.

The change removes the threshold to prevent users from splitting transactions into smaller amounts to evade the rule.

The revised rules will also tighten screening requirements for virtual asset service providers. Reviews of legal violations, financial health and creditworthiness will now extend to major shareholders, in addition to operators, CEOs and executives already subject to scrutiny. Applicants will also have to provide detailed information on major shareholders, including their identities, nationalities and ownership stakes.

The changes to the registration system will take effect Aug. 20, while the expanded travel rule and other measures governing crypto transfers will take effect six months after the revised decree is promulgated.

While crypto regulations are being tightened, calls to delay taxation on crypto investment gains have resurfaced. Rep. Jung Sung-kook of the main opposition People Power Party recently proposed pushing back the tax from 2027 to 2030.

The tax, which has been postponed several times, is currently scheduled to take effect at the start of next year at a combined rate of 22 percent, including local income tax.

Supporters of the delay say the market’s regulatory and tax infrastructure remains insufficient, particularly for transactions involving overseas exchanges, decentralized exchanges, personal wallets and peer-to-peer transfers.

They also argue that taxing crypto gains could raise questions about tax fairness after the scrapping of a financial investment income tax applied to income from financial investments such as stocks.

“Crypto taxation should begin only after adequate investor protections and a fair tax system are in place,” Jung said. “Rather than rushing to impose the tax, sufficient time should be allowed to establish the necessary framework, improve taxpayers’ predictability and minimize market disruption.”