South Korea Moves to Tax Crypto Staking and Lending Rewards at 22%

South Korea is set to introduce a tax on profits from cryptocurrency staking and lending, likely at a rate of 22%, according to a final research report commissioned by the National Tax Service (NTS). The report, prepared by Changwon National University’s Industry-Academic Cooperation Foundation, was completed in March after a five-month study that began in November of last year. It represents the first official attempt by the NTS to classify and tax various crypto profit models that have until now operated in a regulatory gray area.

New Tax Framework for Crypto Profit Models

The research report categorizes crypto earnings into four distinct models: staking, lending, airdrops, and hard forks. Under the proposed framework, staking and lending rewards are classified as ‘lending’ transactions under South Korea’s Income Tax Act. This classification means that interest-like profits generated from depositing coins into staking or lending protocols would be subject to an annual separate tax of 22%, which includes local income tax.

This development comes as South Korea’s broader virtual asset taxation law is scheduled to take effect in January 2025. The law was originally set to begin in 2022 but was delayed twice due to market concerns and political debate. The new guidelines from the NTS aim to provide clarity for taxpayers and tax authorities alike, addressing a long-standing ambiguity around how different types of crypto income should be treated.

Implications for Investors and the Crypto Industry

For South Korean crypto investors, the 22% tax on staking and lending rewards represents a significant shift. Previously, many investors considered these earnings as capital gains or untaxed income. The new classification as ‘interest-like’ income means that taxes will be withheld or reported annually, regardless of whether the investor sells the underlying asset.

Market and Regulatory Context

South Korea has one of the most active cryptocurrency markets in the world, with a high percentage of the population holding digital assets. The government’s move to tax staking and lending aligns with global trends, as jurisdictions like the United States and the European Union also grapple with how to treat proof-of-stake rewards and decentralized finance (DeFi) income. However, the specific rate of 22% is notably higher than the capital gains tax rate on crypto trading profits, which is set at 20% under the upcoming virtual asset law.

The report also touches on airdrops and hard forks, though it provides less detailed guidance on those categories. Industry experts expect further clarification from the NTS before the law takes effect, particularly regarding how to value airdropped tokens and how to handle hard forks that create new assets.

Conclusion

South Korea’s plan to tax crypto staking and lending rewards at 22% marks a major step toward formalizing the taxation of digital assets. The classification of these activities as lending transactions under the Income Tax Act provides a clear legal basis for the tax, but it also raises questions about the competitiveness of South Korea’s crypto market compared to other jurisdictions. Investors should prepare for the new obligations as the January 2025 deadline approaches, and the industry will be watching closely for further regulatory guidance.

FAQs

Q1: When will the new tax on crypto staking and lending take effect in South Korea?
The tax is expected to be implemented alongside the broader virtual asset taxation law, which is scheduled to begin in January 2025.

Q2: What is the tax rate for staking and lending rewards under the new proposal?
The proposed rate is 22%, which includes local income tax. This is a separate annual tax, not a capital gains tax.

Q3: How does this tax differ from the tax on crypto trading profits?
Crypto trading profits are subject to a 20% capital gains tax under the upcoming law, while staking and lending rewards are classified as interest-like income and taxed at 22% annually.