South Korea's Stablecoin Regulation Takes Full Swing... 2027 Virtual Asset Taxation Looms as the Biggest Variable

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As South Korea accelerates the enactment of a basic law on virtual assets, including Won-pegged stablecoins, the opposition party has initiated legislative procedures to abolish virtual asset taxation scheduled for implementation in 2027.

According to investment media FXStreet on July 29 (local time), the Financial Services Commission (FSC) plans to prepare an integrated draft of the Digital Asset Basic Act with the ruling Democratic Party of Korea. The government and the ruling party intend to jointly propose a bill that will serve as a negotiation standard to fully commence the second phase of virtual asset legislation, which has been delayed for several months.

The integrated draft is expected to include regulations on stablecoin issuance and distribution, virtual asset business operators, exchange entry requirements, disclosure, internal control, and system resilience standards. Currently, 10 bills related to virtual assets and stablecoins are pending in the National Assembly, but discussions have not progressed due to disagreements over key issues.

However, the specific timing and method of the bill's proposal have not yet been determined. Key issues remain, such as whether to mandate banks to hold a majority stake in Won-pegged stablecoin issuers, or whether to apply ownership stake limits to large virtual asset exchanges.

The confrontation between the ruling and opposition parties over virtual asset taxation is also intensifying. The National Assembly's Finance and Economy Planning Committee plans to table an amendment to the Income Tax Act proposed by Rep. Song Eon-seok of the People Power Party on March 19. The amendment includes provisions to abolish taxes on income from virtual asset transfers and lending. A petition to abolish taxation, agreed upon by over 50,000 people, is also awaiting parliamentary review, but a specific review schedule has not been set due to the incomplete formation of the relevant subcommittee.

Under the current schedule, from January 1, 2027, a 20% tax rate and a 2% local income tax will be imposed on income from virtual asset transfers and lending exceeding 2.5 million Korean Won, approximately $1,700, annually. While the government and the Democratic Party of Korea maintain that taxation should proceed as planned, the opposition party argues that taxing only virtual assets is unfair, given that most general stock investors receive tax-exempt benefits. The Ministry of Economy and Finance also announced on May 7 its policy to implement virtual asset taxation as scheduled, after several postponements.

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