Korea Tightens Crypto Regulations as Tax Delay Debate Heats Up

Korea's cryptocurrency regulatory framework is at a crossroads as rules tighten on one hand while efforts are underway to delay taxation on investment gains. Financial authorities plan to expand the 'travel rule' for crypto transactions, requiring exchanges to collect and provide transaction information for all transfers.

The revised rules will remove the current threshold of 1 million won ($705) that exempts smaller transactions from the rule. Exchanges will now have to share transaction information for all transfers, regardless of amount, to prevent users from splitting transactions into smaller amounts to evade the rule.

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

In a separate development, a bill has been proposed to postpone the planned taxation of crypto investment gains by three years. The tax is currently scheduled to take effect at the start of next year at a combined rate of 22 percent, including local income tax. Rep. Jung Sung-kook of the main opposition People Power Party argues that taxing crypto gains could raise questions about tax fairness and that adequate investor protections and a fair tax system should be in place before imposing the tax.