On August 28, the South Korean National Tax Service explained that accounts held by South Korean residents in overseas cryptocurrency exchanges, even if the platforms have gone bankrupt and the accounts are no longer capable of trading or withdrawing funds, still fall within the scope of reporting for overseas financial accounts as long as they meet the reporting requirements. This explanation is in regard to the obligation to disclose information, rather than directly determining that tax obligations have arisen on such assets.
The obligation to declare does not cease due to the freezing of an account.
This explanation stems from a consultation from a South Korean resident. The taxpayer is a creditor in a bankruptcy case involving an overseas cryptocurrency exchange. Since November 2022, when the platform entered bankruptcy proceedings, accounts have been unable to conduct normal transactions or withdraw funds, and the process of asset distribution has commenced.
Although this user later received some bankruptcy distribution payments through a domestic and foreign currency account in South Korea, the South Korean National Tax Service believes that the account initially opened with an overseas virtual asset service provider did not lose its taxable status as a result. As long as the account was initially used for digital asset transactions, it can still be recognized as an overseas account that is subject to taxation.
The threshold is calculated based on the consolidation of overseas accounts.
According to current Korean regulations, if a Korean resident or domestic legal entity has a total balance of over 500 million Korean won in their overseas financial accounts at the end of any month within a calendar year, they are required to file a declaration with the tax authorities in June of the following year.
The scope of declaration does not consider individual accounts alone, but is calculated by consolidating eligible overseas accounts. Therefore, even if a single account does not exceed 500 million Korean won on its own, it may still trigger the obligation to declare if, when combined with other overseas accounts, it surpasses the threshold.
- The threshold is a total balance at the end of the month exceeding 500 million Korean won.
- The declaration deadline is June of the following calendar year.
- The declaration includes information on the platform, account, and balance.
Starting from the 2023 reporting cycle, South Korea has included digital assets in its foreign financial account reporting system. This means that accounts from overseas cryptocurrency exchanges can be reported along with overseas deposits, securities, funds, and other assets.
However, self-hosted wallets are handled differently. Since these types of wallets are not opened with overseas virtual asset service providers, they are generally not included in this reporting scope.
There are still practical difficulties in valuing bankrupt accounts.
The Korean National Tax Service's explanation this time clarified whether declaration is required, but the public summary did not provide detailed instructions on how to value accounts from bankrupt exchanges when making such declarations.
In reality, the token balance displayed on the exchange interface may not necessarily equal the amount that can ultimately be recovered in a bankruptcy proceeding. The distribution amount that users ultimately receive may be significantly lower than the original balance shown on their accounts.
Therefore, this explanation does not imply that the declared balance must equal the final amount recovered. For accounts that have entered bankruptcy proceedings, taxpayers may need to retain records of the month-end balance, exchange statements, debt declaration materials, and distribution records to explain the difference between the declared amount and the actual amount recovered.
The South Korean National Tax Service also disclosed that during the 2026 tax filing period, taxpayers in South Korea reported holding overseas digital assets worth 10.5 trillion Korean won, a decrease of 5.4% from the previous year. Among this, the amount held by individuals increased to 9.8 trillion Korean won, while the amount held by corporations decreased to approximately 700 billion Korean won.
Additional information:According to the current arrangements, if a taxpayer reaches the threshold at the end of any month in 2026, they will typically need to complete their tax declaration by June 2027. South Korea also plans to exchange cross-border transaction information through the OECD encrypted asset declaration framework, making it easier to identify undisclosed overseas encrypted accounts in the future; the taxation plan for digital asset earnings is currently scheduled to be implemented starting from January 1, 2027.
