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.
Residents required to declare locked crypto assets
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.
Summary of disclosure requirements
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.
Complexities in valuing frozen crypto balances
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.
| Exchange | Collapse Date | Payout Begin Date | Estimated Return Rate |
|---|---|---|---|
| FTX | November 2022 | April 2024 | 10-50% (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.
Pending crypto tax rules in 2027
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.”
