South Korea is racing to unify and finalize its crypto regulatory framework with the second phase (Phase 2) of its broader regulatory overhaul now entering active development. The Financial Supervisory Service (FSC) has reiterated its commitment to finalize stablecoin rules this year, with Director General Yoo Young-jun noting that the government is currently consulting with relevant agencies with the goal of completing legislation on virtual assets as soon as possible. This acceleration comes amid reported record $346 million stablecoin outflow from the country to overseas exchanges in June, which was equivalent to 78% of South Korean investors' net purchases of overseas stocks in that month.
South Korea's Ministry of Economy and Finance confirmed on August 3 that it has finalized the 2026 tax reform proposal without including another postponement for virtual asset taxation. According to reports from The Economic Times, the 22% tax on cryptocurrency investment gains remains scheduled to begin on January 1, 2027, pending parliamentary approval in the National Assembly. Under the current Income Tax Act, profits from transferring or lending virtual assets will be taxed as other income, with investors paying 20% national tax plus 2% local income tax on annual gains exceeding ₹2.5 million ($1,740). The first tax return covering crypto income earned during 2027 will be filed in May 2028.
The Digital Asset Basic Act (VABA) is currently under review in Phase 2, focusing on stablecoins, tokenization, crypto ETFs and corporate access to the sector. Notably, domestic firms have been under a 9-year ban from the market, but this restriction will be lifted under the new framework. The FSC is also considering excluding U.S dollar stablecoins (USDT and USDC) to boost Korean Won (KRW) alternatives, while the country is actively deepening its Central Bank Deposit Currency (CBDC) in Phase 2 with nine major banks for a wholesale payments layer. There are currently about 10 crypto and stablecoin coins under consideration in the National Assembly aimed at building the VABA legislation.
Despite government confirmation and accelerated regulatory development, the tax reform package still requires National Assembly approval before becoming law. The opposition People Power Party continues to oppose the measure and has proposed amendments to remove crypto income from the Income Tax Act altogether. Party lawmaker Kim Sang-hoon questioned the absence of rules allowing investors to carry forward trading losses, warning the framework could encourage traders to move activity to overseas platforms. The 22% crypto capital gains tax for profits exceeding $1,700 (2.5M KRW) continues to elicit strong opposition, with its implementation remaining unclear whether it will be repealed despite the government's commitment to proceed as scheduled.
South Korea's crypto regulatory push comes as the country dominates 65% of global stablecoin volume and maintains overall crypto adoption ranked second in the APAC region after India. However, the urgency stems from capital outflows seeking access to high-risk derivatives, RWA (real-world asset tokenization) products, and DeFi services that aren't available domestically. The government's comprehensive examination of investor protection and supervisory frameworks represents a significant shift in approach, with Rep. Lee Jong-wook of the main opposition party calling for swift regulatory improvements to address these market gaps.
