Nearly 40,000 users in South Korea have signed up for crypto cards, industry data show. With the country set to fully impose taxes on virtual assets next year, concern is growing inside and outside the industry that payments made through such cards could remain beyond the reach of tax authorities. That, in turn, is fueling expectations of stronger demand.
As of the first half of this year, cumulative downloads in South Korea for major crypto-card apps totaled about 38,000, according to industry data released on Aug. 19. Crypto cards allow users to load virtual assets such as Bitcoin and Tether through dedicated apps and spend them at online and offline merchants linked to global payment networks including Visa and Mastercard. At the point of purchase, the crypto can be converted into fiat currency, or users can pay with balances exchanged in advance.
South Korea plans to fully implement virtual-asset taxation next year. Under current law, income from transfers or lending of virtual assets will be classified as other income starting in January 2027 and taxed accordingly. Profits above the annual basic deduction of 2.5 million won ($1,800) will be subject to a 22% tax rate, including local income tax.
Crypto Flows Abroad Accelerate as Tax Detection Gets Harder
The concern over a tax blind spot stems from the ability to spend investment income earned in overseas crypto markets directly in South Korea. Because crypto cards can be funded directly from personal wallets, profits generated on decentralized exchanges, or DEXs, can be used for purchases without going through a domestic financial institution for conversion.
The outflow of crypto assets held by South Korean investors is also accelerating. In the first half alone, local investors transferred about 47 trillion won ($34 billion) in virtual assets to overseas exchanges and personal wallets, according to industry figures.
Tax authorities are also stepping up efforts to gather information on overseas crypto transactions. Under the OECD's Crypto-Asset Reporting Framework, or CARF, South Korea plans to begin exchanging virtual-asset transaction data with 55 countries next year.
The key question is how much income from transfers and exchanges in overseas crypto markets the authorities will be able to identify. CARF requires virtual-asset service providers that intermediate customer transactions to collect and report trading data. But DEXs operate through smart contracts without a separate operator or intermediary, making user-by-user transaction data difficult to obtain. The National Tax Service has also acknowledged practical limits in identifying all virtual-asset transactions made through personal wallets.
"Just as the National Tax Service cannot fully track cash transactions, similar problems could arise with crypto trades on overseas DEXs," one crypto-industry official said. Capturing every transaction will be difficult in practice even if authorities work to reduce blind spots, the person added.
Another challenge for authorities is that crypto cards are issued by overseas operators. Typically, if credit- or debit-card spending is sharply out of line with reported income or declared assets, that can serve as a clue to unreported income or gifts. A large gap between income and consumption can prompt the authorities to demand an explanation of the source of funds.
By contrast, even when a crypto card issued overseas is used at a merchant in South Korea, payment data alone may not allow authorities to immediately identify the user. If such transactions are not detected, taxation may depend on voluntary reporting by the taxpayer.
"Payment records will show that a card issued overseas was used at a Korean merchant, but resident registration data or customer identification information that could confirm whether the cardholder is Korean is not automatically transmitted to domestic institutions," a card-industry official said. Verifying information on a specific user would currently require separate cooperation requests to a global payment-network company or an overseas financial institution, the person said.
Cho Jae-woo, head of the Blockchain Research Institute at Hansung University, said user-specific data sought by tax authorities may not exist in the first place for DEX transactions conducted solely through wallet addresses without identity verification. If assets accumulated that way are then used for living expenses through crypto cards, tracing the money flow becomes more difficult and the transactions may go uncaptured by the tax system, he said.
Fairness Concerns Seen Driving Wider Adoption
Crypto cards have recently been spreading by word of mouth among virtual-asset investors, according to industry participants.
Some in the industry say that if virtual-asset taxation is pushed through before broader consensus is formed, more investors could move to overseas exchanges, DEXs and personal wallets to avoid taxes. In that process, use of crypto cards may also increase because they connect overseas crypto holdings to domestic spending.
One investor, identified only as A, said he agreed in principle with taxing crypto income, but that the same standard should apply fairly to all investors. There is even a growing perception among investors that not using a crypto card could leave them at a disadvantage, he said.
Another investor, identified as B, said he ultimately obtained a crypto card issued overseas after considerable deliberation. The decision was driven less by a desire to avoid taxes than by concerns about fairness in the tax approach now being pursued, the investor said, adding that it was wrong for only investors using domestic exchanges to be subject to taxation.
Experts say imposing the tax while large areas of hard-to-detect transactions remain beyond the authorities' reach could strengthen incentives for tax avoidance.
"If taxation is introduced while there are still areas that are easy to avoid or conceal, fair taxation may be difficult," Cho said. "If the structure continues in which only some transactions can fall outside the tax net, investors' incentive to evade regulation will also grow." He added that crypto cards could trigger a major boom in South Korea next year for that reason.