Following a new report from its tax watchdog, South Korea could be updating its tax regime to clamp down on unreported overseas earnings in digital currencies, stocks, and other financial assets.
According to the National Tax Service (NTS) report, nearly 1,500 individuals and companies confirmed that they currently hold digital currencies outside South Korea. The NTS report pegs the total digital currencies held outside the country’s shores at KRW 130.8 trilion (US$98 billion).
The figure represents over 70% of the total financial assets held by South Koreans outside the country, with the total figure pegged at KRW 186 trillion (US$140 billion). Bank deposits, savings, and stocks comprised the remaining $140 million owned by South Koreans in foreign jurisdictions.
While the NTS has previously had a hard time taxing overseas income, the tax watchdog noted that citizens will soon be unable to bring tax-free earnings into the country.
Since the start of the year, the NTS has been inching forward with comprehensive guardrails to stem the growing trend of tax avoidance in the country, collaborating with other government agencies. The NTS says it will cooperate with regulators given digital assets’ borderless nature.
“In order to respond to the risk of potential tax base erosion through digital assets, tax authorities around the world, including the National Tax Service, are preparing to exchange information in accordance with the Information Exchange Reporting Regulations,” read the report.
Despite the difficulties associated with taxing digital currency earnings, the NTS has earned some victories against tax evaders. In 2022, the country announced it had recovered unpaid taxes from private individuals and corporations via digital currency seizures.
Municipal authorities have hinted at plans to follow the central government’s lead in seizing digital currencies over default in tax payments. Cheongju authorities have reportedly ordered local exchanges to provide data into the activities of up to 8,000 users owing up to KRW 1 million (US$750).
Indonesia’s new rules
Indonesia’s Revenue Department has announced that it will impose personal income tax requirements on overseas earnings on digital currencies and other digital assets. The new rules extend to trading in foreign stock exchanges and profits from all assets earned abroad, with the tax regime set to be operational at the start of 2024.
“The principle of tax is that you must pay tax on income you earn from abroad no matter how you earn it and regardless of the tax year in which the money is earned,” said an official from the Thai Revenue Department.
The new rules have been criticized for lacking enforcement measures and the negative signals sent to foreign investors and private bankers.