Cryptocurrency investors will be imposed a 20 percent capital gains tax starting next year in South Korea but they are entitled to a tax deduction on expenses incurred during mining processes such as electricity bills.

The Ministry of Economy and Finance said Wednesday that income gains of over 2.5 million on ($2,230) on virtual coin transactions will be taxed at the rate of 20 percent starting 2022. But any expenses associated with mining activities can be deductible.

Digital currency miners need to operate multiple computers and dedicated machines around the clock to crunch a complex series of algorithm, which leads to massive electricity costs. The government said it would recognize the bills as business expenses subject to tax deduction. An official from the finance ministry said investors living in the country need to prove how much of their electricity bill is related to the mining activities to get a deduction when they report income from virtual currency dealings in May.

The ministry said the amount of tax that cryptocurrency investors would pay next year will be minimal despite the record-high surge in value of digital coins like bitcoin this year, because the taxation will be applied to gains or losses to be incurred from next year.

By Lee Ji-yong and Choi Mira

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