South Korea Expands Tax Net to Cryptocurrency Firms, Lifts Venture Restrictions

South Korea is taking significant steps to expand its tax net to include cryptocurrency firms, reflecting a broader shift in policy towards embracing digital assets. On July 9, 2025, the National Tax Service (NTS) clarified that residents must report comprehensive income tax on virtual assets received from foreign corporations in return for labor, even if the income is paid outside of traditional corporate structures. This clarification underscores the government's intent to close loopholes and ensure compliance with tax laws in the evolving cryptocurrency sector.

The NTS provided an illustrative example where an employee signed a direct incentive contract with a foreign corporation based in Singapore, receiving virtual assets as compensation for work. The NTS determined that these virtual assets fall under the country’s Income Tax Act, specifically Article 127 (withholding obligation) and Article 70 (final declaration of tax standard). This move ensures that all forms of income, including those from cryptocurrency, are subject to taxation, aligning with the government's efforts to maintain accountability and compliance.

In a parallel development, South Korea’s Ministry of SMEs and Startups proposed a partial amendment to the Enforcement Decree of the Special Act on the Development of Venture Enterprises. This amendment aims to remove the restriction on businesses involved in virtual asset trading and brokerage, which were previously categorized as restricted industries. The original restriction was based on concerns about market volatility, lack of regulation, and user protection. However, with the enforcement of the Virtual Asset User Protection Act in 2024, a more robust legal infrastructure now exists for the digital asset market.

The proposed amendment would allow new technology-based virtual asset companies to register as venture companies, provided they demonstrate innovation and business potential. Existing venture companies would also be able to pursue virtual asset-related projects without the risk of losing their certification. This change reflects the improving public perception of the digital asset industry and acknowledges the emerging legal and institutional safeguards for user protection. The ministry stated that lifting these restrictions is necessary to promote consistency in policy and support future growth in the sector.

This policy shift aligns with President Lee Jae-myung's administration, which has pledged to support cryptocurrency assets backed by the South Korean Won and allow the nation’s pension fund to invest in cryptocurrency. The amendment is part of a broader initiative to foster a more supportive environment for the cryptocurrency industry, including potential plans to lift the ban on crypto-backed exchange-traded funds and allow trading for spot Bitcoin ETFs by the second half of this year. The Democratic Party, which elected Lee as president, is also pushing regulators to pass a working draft for the country’s first stablecoin bill, dubbed the “Basic Act on Digital Assets.”

Overall, these developments signal a significant policy shift in South Korea, aimed at promoting the growth and innovation of the cryptocurrency industry. By expanding the tax net and lifting restrictions on venture companies, the government is creating a more favorable environment for digital asset firms, potentially leading to increased investment and economic benefits. This move reflects the government's recognition of the potential of cryptocurrency and blockchain technology in driving future economic growth.