South Korea requires crypto account reporting even for bankrupt overseas exchanges

South Korea's National Tax Service ruled on August 28, 2026, that residents must report cryptocurrency accounts held with bankrupt overseas exchanges if their combined foreign balances exceed 500 million won. The decision, arising from a November 2022 exchange bankruptcy, clarifies that disclosure duties persist despite frozen withdrawals. While overseas crypto disclosures fell 5.4% to 10.5 trillion won in 2026, the ruling precedes a planned 22% tax on digital asset gains starting in 2027.

Bankrupt exchange account reporting requirement

• ▪The South Korean resident who inquired about the tax rule had been receiving partial bankruptcy distributions from the bankrupt overseas exchange into a domestic foreign-currency account.
• ▪South Korea's National Tax Service ruled on August 28, 2026, that residents must continue reporting qualifying cryptocurrency accounts held with bankrupt overseas exchanges, even when trading and withdrawals are suspended.
• ▪The National Tax Service issued its ruling in response to an inquiry from a South Korean resident who was a creditor of an overseas cryptocurrency exchange that entered bankruptcy in November 2022.

500 million won disclosure threshold

• ▪During the 2026 disclosure cycle, individual South Korean overseas digital asset holdings rose 5.4% to 9.8 trillion won, while corporate holdings fell 61.1% to 700 billion won.
• ▪South Korean taxpayers must submit their foreign financial account reports during June of the calendar year following the reporting period.
• ▪South Korean taxpayers reported 10.5 trillion won in overseas digital assets during the 2026 disclosure cycle, representing a 5.4% decline from the previous year.
• ▪Under South Korea's Adjustment of International Taxes Act, residents and domestic corporations must report foreign financial accounts if their combined balance exceeds 500 million won on any month-end during the year.

Bankruptcy valuation challenges

• ▪Bankrupt cryptocurrency exchange interfaces may display a customer's original token balance even when the bankruptcy estate cannot return all assets, creating a valuation discrepancy.
• ▪The National Tax Service's ruling does not fully explain how South Korean taxpayers should value a disputed or partially recoverable bankruptcy claim from an insolvent overseas exchange.

Digital asset reporting regime expansion

• ▪Self-custody and decentralized cryptocurrency wallets are excluded from South Korea's foreign financial account reporting requirements because they are not accounts opened with overseas virtual asset service providers.
• ▪Digital assets have been included in South Korea's foreign financial account reporting regime since the 2023 reporting cycle, alongside deposits and securities.

2027 crypto tax implementation

• ▪The National Tax Service is developing wallet-tracing tools for overseas transactions and plans to exchange transaction data through the OECD's Crypto-Asset Reporting Framework ahead of the 2027 tax.
• ▪South Korea plans to implement a combined 22% tax (20% national and 2% local) on qualifying annual digital asset gains exceeding 2.5 million won starting January 1, 2027.

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