On August 28, the National Tax Service of Korea clarified that accounts held by Korean residents at overseas cryptocurrency exchanges remain subject to reporting requirements as foreign financial accounts, even if the platform has gone bankrupt and the accounts are no longer accessible for trading or withdrawals, provided they meet the reporting threshold. This clarification pertains to disclosure obligations and does not constitute a direct determination that taxable income has been generated from these assets.
The obligation to report does not disappear due to account freezing.
This explanation stems from a query by a resident of South Korea. The taxpayer is a creditor in the bankruptcy case of an overseas cryptocurrency exchange. Since the platform entered bankruptcy proceedings in November 2022, the account has been unable to conduct normal trading or withdrawals and has entered the asset distribution process.
Although the user later received a portion of the bankruptcy distribution through a foreign currency account in Korea, the Korean National Tax Service considers that the originally established account with an overseas virtual asset service provider did not lose its reporting status. As long as the account was initially used for digital asset transactions, it can still be classified as a reportable overseas account.
The threshold is calculated cumulatively across overseas accounts.
Under current Korean regulations, Korean residents and domestic legal entities must file a report with the tax authority by June of the following year if the combined month-end balance of their overseas financial accounts exceeds KRW 500 million in any month of a given calendar year.
The reporting scope is not based on a single account alone, but rather on the combined total of all eligible overseas accounts. Therefore, even if an individual account does not exceed 500 million KRW, the reporting obligation may still be triggered when combined with other overseas accounts and exceeds the threshold.
- The threshold is a combined month-end balance exceeding 500 million KRW.
- The reporting period is June of the following calendar year.
- The declaration includes platform, account, and balance information.
Since the 2023 reporting period, South Korea has included digital assets in its Foreign Financial Account Reporting system. This means that accounts on overseas cryptocurrency exchanges are now subject to reporting alongside overseas bank deposits, securities, and funds.
However, self-custody wallets are handled differently. Since these wallets are not accounts opened with overseas virtual asset service providers, they are typically not included in this reporting scope.
Valuing bankrupt accounts still presents practical challenges.
The Korean National Tax Service's recent clarification specified whether reporting is required, but the public summary did not detail how bankruptcy exchange accounts should be valued for reporting purposes.
In practice, the token balance displayed on the exchange interface may not equal the amount ultimately recoverable in bankruptcy proceedings. The final distribution received by users may be significantly lower than the original balance shown in their accounts.
Therefore, this explanation does not mean that the claimed balance necessarily equals the final recovery amount. For accounts that have entered bankruptcy proceedings, taxpayers may need to retain month-end balance records, exchange statements, creditor claim documents, and distribution records to explain the difference between the claimed amount and the actual recovery amount.
The National Tax Service of South Korea also disclosed that, during the 2026 filing period, Korean taxpayers reported overseas digital assets totaling KRW 10.5 trillion, a 5.4% decrease from the previous year. Individual holdings increased to KRW 9.8 trillion, while corporate holdings declined to approximately KRW 700 billion.
Additional information: Under the current arrangement, if a taxpayer exceeds the threshold in any month-end in 2026, they are generally required to file their return by June 2027. South Korea also plans to exchange cross-border transaction information through the OECD’s Crypto-Asset Reporting Framework, making it easier to identify undeclared offshore crypto accounts in the future; the taxation plan for digital asset gains is currently scheduled to take effect on January 1, 2027.