NFTs or non fungible tokens have gained popularity as digital collectibles, artwork, or unit of ownership. With the growing interest in NFTs, many investors have unique tax considerations to address. For example, in South Korea, the issuance and trading of NFTs is subject to various taxation rules.
This guide will provide an overview of taxes related to NFT trades and investments in South Korea. We will focus on income taxes, corporate/business taxes and transfer taxes about NFTs. We will also discuss possible exemptions that may apply when dealing with certain NFTs. Finally, we will provide tips on navigating taxation requirements when investing in South Korea’s burgeoning NFT market.
The Income Tax Act (ITA) is the fundamental law governing taxation in South Korea that applies regardless of whether you are an individual investor or a corporation engaging in NFT activities. Therefore, individuals who engage in personal investments are subject to the ITA’s provisions for calculating income tax liabilities on their earnings from any source including trading or investing in non-fungible tokens (NFT).
Corporations may be subject to additional taxation rules depending on their business sector and specific activities involving non-fungible tokens (NFT). For instance, companies engaged in mining activities might come under additional regulations related to zoning and environmental factors whereas companies providing exchange services might face restrictions such as compliance with money laundering regulations. In general, all businesses that generate income from transactions involving non-fungible tokens must register with the tax authorities to report on their activities accordingly.
Transfer taxes are levied when moving assets from one party’s account to another; this applies to physical assets like land and possessions and digital assets like cryptocurrency or even non-fungible tokens (NFT). Depending on the type and value of that asset transfer taxes may be applicable at a national level such as The Real Estate Acquisition Tax Act (REATA) for land transfers; alternatively there may be local laws associated with certain asset transfers as well eg property transfer fees levied by municipalities across South Korea when dealing with land transactions within their jurisdiction etc…
Definition of NFTs
NFTs, or Non-Fungible Tokens, are virtual assets built on a blockchain such as Ethereum. They are generally used to store and manage digital art, collectibles, gaming assets, event tickets and crypto-assets. As they exist on a blockchain, transactions involving NFTs can be written as codes and offer advantages such as tamper-proof data storage, ease of use and immutability.
In South Korea, the taxation of Non-Fungible Tokens is still relatively new. The South Korean government has recently clarified that financial gains made from Crypto Assets including but not limited to NFTs are subject to the income tax liability. For individuals or entities dealing in or trading with Crypto Assets who have aggregate annual inflows from those activities exceeding 2.5 million won (about US$2250), their income will be subject to income tax ranging between 1% to 50%. However, this also depends on the type of activity being conducted and the country’s laws.
Generally speaking in South Korea, if an individual collects a profit from buying and selling Crypto Assets that include NFTs via exchange services such as Upbit Korea Co., Ltd., they are liable for taxation upon its disposal within one year after acquisition either by sale or any other means. However, the exact amount payable in taxes will depend on the gain made by individuals during exchanges on those services after acquisition minus any expenses incurred in acquiring those Crypto Assets including NFTs*. Therefore knowing exactly how much one’s taxable gains are can be difficult for many users who purchase these digital items solely for speculative purposes. This is why everyone involved must take some time before getting into this increasingly popular industry fully understanding taxing implications.
*This article should not be taken as professional/legal advice
South Korea financial authority rules that NFTs are taxable
Recently, the South Korean financial authority has officially addressed the issue of taxation on NFTs. It clarified that NFTs created in South Korea are taxable, subject to the same laws and regulations as other digital assets. This new ruling has created a potential taxation burden for NFT owners in South Korea and individuals should familiarise themselves with the taxation rules in the country.
This article will provide an overview of the taxation rules for NFTs in South Korea.
Taxation Rules by the South Korean Financial Authority
The South Korean government categorises non-fungible tokens (NFTs) as digital assets, and the taxation rules are based upon the nature of these assets. Therefore, transactions using NFTs in South Korea will be subject to taxation according to the following criteria.
Income Tax: Any income derived from a transaction which involves NFTs will be taxed under the “Income Tax Act” (or “ITA”). This includes profits earned through the sale of an NFT and any fees earned from developing and/or managing investments involving NFTs. In addition, capital gains made from selling a capital asset like an NFT may also be eligible for special capital gains rates under the “Capital Gains Tax Act” (or “CGTA”).
Transfer Income Tax: The transfer of ownership of an NFT is subject to transfer income tax, also called stamp duty. The rate depends on whether the value of the transferred asset is greater than 500 million won (approximately 459 thousand USD). For valuable assets above this threshold, a 0.3% transfer fee will be applied to all transferred assets including digital ones such as cryptocurrencies or non-fungible tokens. On the other hand, any transfer below 500 million won is exempt from stamp duty tax.
Value Added Tax: Value added tax (VAT) is imposed on goods and services in South Korea, including those regarding digital assets like NFTs. For example, when purchasing or selling an asset using cryptocurrency as payment or remittance, VAT must be paid; furthermore, businesses providing storage services for digital assets may also need to register their activities with local tax offices and submit a VAT return every month or quarter depending on their circumstances. Furthermore, property taxes on virtual items holding any monetary value may also apply in some cases. In addition, companies conducting transactions with users across multiple countries may need to consider international taxation issues such as double taxation privileges under applicable international agreements between countries.
Taxation of NFTs in South Korea
In South Korea, ownership of non-fungible tokens (NFTs) is subject to taxation as part of the ‘Cryptocurrency Taxes Law’, which occurred in July 2020. In addition, NFTs are considered a “virtual property” subject to taxation under the Virtual Property Taxation Act.
Under South Korean law, individuals who hold NFTs must pay income tax on those assets. This means that any profits made upon the sale or exchange of an NFT are subject to taxation at a rate of 20 percent and must be reported on an individual’s annual tax return. It is also important to note that if taxpayers fail to report their income from NFT transactions on their annual tax return, they risk penalties and/or fines.
Additionally, South Korean citizens engaging in cryptocurrency trading may also be required to pay Gift Tax for any transactions involving the transfer of digital tokens, including trades involving NFTs. According to the Cryptocurrency Taxation Law, gifts whose value exceeds 50 million won (approximately $45,500) will be subject to gift taxes at rates ranging from 10% – 50%, depending on the amount transferred and whether it was done for business or personal/familial purposes.
NFT creators may also be required to pay Corporate Income Tax at 22%. Furthermore, when it comes time for creating an NFT artwork or digital asset that involves music or video content, artists can choose between registering as a “normal corporation” or “film company”. If they choose the latter option, they will receive certain tax breaks and other incentives depending on their scope of work and level of investment in producing these works.
Thus it is important for individuals who own Digital Assets such as Non-Fungible Tokens (NFT) and creators and distributors to understand their obligations when it comes time for taxation purposes in South Korea.
tags = South Korea, financial authority, NFTs, taxable, virtual assets, Financial Services Commission, Doh Kyu-sang, nfts wemade max giantstepleebloomberg, south wemade max giantstepleebloomberg, cryptocurrencies