The South Korean National Tax Service has determined that labor compensation distributed through virtual assets is subject to virtual taxation and is classified as overseas employment income.

Many companies in the cryptocurrency industry distribute salaries through issuing coins or in the form of stablecoins. Recently, the National Tax Service of South Korea has responded, confirming that labor remuneration distributed in the form of virtual assets also needs to be reported through the channels for overseas employment income.

The South Korean National Tax Service has decided: Tax must be paid on labor compensation obtained through virtual assets.

According to Digital Asset, the South Korean National Tax Service has responded to the question raised in March regarding whether residents need to declare virtual assets obtained from foreign entities as overseas employment income and submit a final income tax return. The South Korean National Tax Service stated: "If there is no withholding income tax through a tax association, there is an obligation to submit a final income tax return."

What is noteworthy in this case is that the National Tax Agency cited a case of overseas employment income issued in the form of virtual assets. Company A has a subsidiary B in Singapore. Company B intends to pay its employees working in South Korea with virtual assets as compensation. Although these employees work for the affiliated company C in South Korea, they actually signed a contract directly with Company B in Singapore, and the South Korean Company C did not participate in the contract signing. Their job responsibilities involve handling tasks related to blockchain and Crypto Assets exchanges according to the instructions of Company B, thus receiving virtual assets as rewards.

Labor compensation is subject to taxation, while trading coins currently has no tax requirements.

The National Tax Service has determined that a final income tax declaration must be made in accordance with the provisions of the withholding tax obligation under the Income Tax Act (Article 127) and the final income tax standard determination report (Article 70). The report cites the opinion of tax accountant Kim Ji-ho from Seumtax, stating that if one works for an overseas corporation and acquires assets with economic value, a declaration is required. In comparison, if one invests in virtual assets and earns profits, there is no need to pay taxes; however, if services or labor are provided to acquire virtual assets, taxes must be paid.

Talking about the virtual asset tax issues in South Korea, the ruling Democratic Party once proposed to raise the tax deduction for cryptocurrency to 50 million won. In the income tax amendment proposed by Democratic Party member Jeong Tae-ho, the deduction was revised from below 2.5 million won to below 50 million won. In addition, the amendment introduced a new clause stating that if taxpayers find it difficult to confirm the actual cost price of cryptocurrency, they may use a certain percentage of the transaction amount, up to 50%, as a substitute. This means that half of the transaction income can be tax-exempt.

A relevant person from the Finance Committee explained: "The deduction is set at 50 million won, and with a 5% return rate, the investment amount must exceed 1 billion won. In this way, most investors will no longer be subject to taxation, with only a few large holders being affected."

This article states that the South Korean National Tax Service has ruled that labor compensation distributed through virtual assets is subject to virtual taxation and is classified as overseas employment income. This was first reported in Chain News ABMedia.