South Korean companies and individual investors must report foreign financial accounts to the tax authority if their combined balance at the end of any month during the year exceeds 500 million won (approximately $350,000). Digital assets have been subject to this regime since 2023. However, the requirement does not apply to self-custody wallets, as they are not accounts opened with a service provider. The tax return must include details about the foreign institution, account information, and balance data.
A clarifying ruling was issued by the regulator in response to a request from a South Korean resident who was a creditor of a foreign cryptocurrency exchange that went bankrupt in November 2022 (officials do not name the company, but all indications point to FTX). The South Korean resident held his assets on the platform, participated in the asset distribution process, and began receiving partial payouts to his fiat bank account in Korea.
An investor approached the tax authority with a question: Must they declare funds held on a foreign financial account if those funds became frozen during the exchange’s bankruptcy proceedings, preventing cryptocurrency owners from withdrawing or transacting with them? The South Korean tax authority responded affirmatively, clarifying that traders are required to disclose information about their virtual assets held on accounts with foreign service providers, even in cases of operator bankruptcy or loss of control over the assets.
Filing a declaration does not automatically mean taxes must be paid on these assets. However, South Korean citizens may find it difficult to prove that funds on accounts at overseas exchanges have already been lost or are inaccessible. The interface of a bankrupt exchange may still display the original balance of client tokens, even if the bankruptcy trustee is unable to recover the full amount.
According to South Korea’s National Tax Service, local traders reported foreign digital assets totaling 10.5 trillion won ($7.8 billion) for 2026, a 5.4% decrease from the previous year. Starting January 1, 2027, the country plans to implement a combined tax rate of 22% on annual cryptocurrency income exceeding 2.5 million won ($1,858). The agency has not yet clarified how income from staking and airdrops will be taxed, or how costs for acquiring crypto assets will be calculated.
Recently, the Central District Court of Seoul ordered a customer of South Korea’s second-largest cryptocurrency exchange, Bithumb, to return approximately $140,400 after selling bitcoins that were mistakenly deposited into his account. The court classified the funds received by the customer as unjust enrichment.