South Korea’s National Tax Service has clarified that residents holding cryptocurrencies on foreign exchanges are required to declare those assets under the country’s foreign-account disclosu
South Korea’s National Tax Service has clarified that residents holding cryptocurrencies on foreign exchanges are required to declare those assets under the country’s foreign-account disclosure rules, even if the exchange is bankrupt or access to funds is blocked.
The ruling was issued after a resident, who served as a creditor for an overseas crypto exchange that collapsed in November 2022, asked whether they still needed to declare digital assets they could not access.
The individual had maintained token balances on the platform before its collapse and later received partial payouts as part of the bankruptcy proceedings, deposited into a domestic foreign-currency account.
South Korea’s National Tax Service responded that the obligation to report overseas financial accounts, as outlined in Article 53 of the Act on International Tax Adjustment, remains in place regardless of an exchange’s operational status or user access.
The National Tax Service stated that accounts opened with a foreign virtual-asset service provider remain subject to reporting obligations, even following the provider’s bankruptcy.
This ruling means that even if individuals lose control over their assets due to an exchange’s failure, they must still comply with disclosure standards as long as their accounts meet the required thresholds.
Under South Korean law, residents and domestic companies must report all overseas financial accounts, including those holding digital assets, if their combined balance exceeds 500 million won (approximately $350,000) at the end of any given month during the year.
Filings must include the name of the foreign institution, details of the account, and the reported balance. Since the 2023 reporting cycle, digital assets held on foreign platforms have been explicitly included within this framework. However, self-custody wallets do not require declaration, as they are not considered accounts with a service provider.
The latest clarification extends these requirements, confirming that bankruptcy of an exchange does not nullify the disclosure obligation, even if account holders can no longer withdraw or trade their assets.
Mini dictionary: Act on International Tax Adjustment, a South Korean law regulating the reporting of overseas financial accounts and international tax matters.
Although declaring a foreign account does not equate to tax liability, tracking the actual value of inaccessible digital assets poses a challenge for many Koreans. The account interface of a failed exchange may continue to show a user’s pre-bankruptcy token balance even though the actual funds are unavailable.
Account holders may eventually receive only a fraction of their original holdings through court-ordered distributions, a process that can take years.
The FTX bankruptcy case is a prominent example, as creditors only began receiving payouts long after customers first lost access to their assets.
ExchangeCollapse DatePayout Begin DateEstimated Return RateFTXNovember 2022April 202410-50% (varies by asset and jurisdiction)For the 2026 reporting cycle, Koreans declared a total of 10.5 trillion won in overseas digital assets, marking a 5.4% decrease from the previous year, according to the tax agency.
The foreign-account disclosure requirements are separate from South Korea’s scheduled tax on crypto gains, which is set to take effect on January 1, 2027. The tax will impose a 22% rate—comprised of 20% national tax and 2% local tax—on annual profits above 2.5 million won.
Authorities have yet to clarify how staking, airdrops, or acquisition cost calculations will be handled under the new tax regime. Some critics argue that defining new taxable events by administrative guidance rather than explicit law may contradict Korea’s principle of “no taxation without law.”
The post South Korea orders residents to report overseas crypto even if exchange fails appeared first on COINTURK NEWS.
