South Korean authorities are taking bold steps to crack down on tax evasion related to cryptocurrency. On February 3, 2025, local media reported that Gwacheon city has announced the use of advanced IT solutions to identify and seize crypto assets from tax evaders. This initiative aims to address the growing concern over high-income individuals hiding wealth in digital assets to avoid paying taxes.
Regulators have already pinpointed 361 high-income citizens who have not paid taxes on their crypto gains. The average amount of unpaid taxes per individual is reportedly around 18.8 billion won, and the total evaded taxes have been calculated to exceed 3 million won. With this growing problem, the city is using new technological tools to identify crypto wallets linked to these tax evaders.
While the country continues to deliberate on the broader issue of crypto taxation, authorities are not waiting for a national consensus. Certain regions, including Gwacheon, have already been empowered to seize crypto assets and other digital holdings from individuals under investigation for tax evasion.
South Korea’s regulators have been grappling with how best to regulate cryptocurrencies. Originally, a 20% crypto tax was slated to come into effect, but the government postponed this reform until 2027, giving tax agencies time to refine the framework. Meanwhile, they have been more aggressive in targeting tax evaders.
Despite the delay in the crypto tax, authorities are acting swiftly on those who are suspected of evading taxes by hiding assets in crypto. They have assured taxpayers under scrutiny that they will receive due warnings before any actions are taken. Those who fail to pay the owed taxes will have their crypto assets seized.
Kang Min-ah, Gwacheon City Tax Division Chief, emphasized the importance of fair taxation and vowed to intensify efforts against tax evasion. In the last five years, the city has seized approximately 300 million won worth of digital assets from high-net-worth individuals evading taxes. In 2024 alone, more than 110 million won in digital assets were seized.
The rise in crypto-related crimes has prompted the South Korean government to seek additional regulatory measures. Reports from the Korea Customs Service reveal that virtual asset-related offenses accounted for 81.3% of illegal foreign exchange activity, which totaled 11 trillion won (around $8 billion). As a result, the government is pushing for amendments to the Foreign Exchange Transaction Act to better address these growing issues before crypto-related crimes spiral out of control.
South Korea is also pushing ahead with its Virtual Asset User Protection Act, introduced in July 2024, which mandates more stringent compliance measures for Virtual Asset Service Providers (VASPs) to safeguard investors.
Despite the crackdown on tax evasion, many investors are concerned about the delayed implementation of crypto tax reforms. The postponement of the 20% tax was seen as a move to attract investment in South Korea's crypto sector, which has become an increasingly popular avenue for investors. According to government data, the market capitalization of virtual assets grew by 27% year-on-year, reaching 55.3 trillion won by June 2024, with daily trading volumes hitting 20 trillion won.
In contrast, South Korea's stock market has struggled to keep pace. Margin deposits have fallen significantly, and daily stock trading volumes lag behind the booming crypto sector. In addition, the cancellation of a proposed income tax for higher earners has fueled dissatisfaction among young crypto investors, further exacerbating concerns over perceived inequities in the tax system.
As South Korea tightens its grip on crypto tax evasion and prepares for future regulatory changes, the crypto sector is in a state of flux. While the government delays the introduction of crypto taxes until 2027, it is taking swift action against those trying to hide assets in digital currencies. With a focus on fair taxation and increased regulatory oversight, South Korea is looking to strike a balance between fostering investment and ensuring compliance with tax laws.
