South Korea’s National Tax Service has ruled that residents holding crypto at an overseas exchange must still declare those accounts under the country’s foreign-account disclosure rules, even if the exchange collapses and users cannot trade or withdraw. The ruling, issued on August 28, comes months before Seoul begins taxing crypto gains in January 2027.
The decision arose after a Korean resident who was a creditor of an overseas exchange that went bankrupt in November 2022 asked whether the reporting obligation under Article 53 of the Act on International Tax Adjustment still applies when an account is stuck in bankruptcy limbo. The tax agency said yes, stating that an account opened with a foreign virtual-asset service provider retains the reporting obligation, and the duty survives the operator’s bankruptcy.
Under the rules, Korean residents and domestic companies must report overseas financial accounts when the combined balance tops 500 million won (about $350,000) at any month-end during the year. Digital assets have counted toward this regime since the 2023 reporting cycle. Self-custody wallets are not included because they are not accounts opened with a service provider.
The tax agency noted that reporting an account is not the same as owing tax on it. However, users may face valuation difficulties because a bankrupt exchange’s interface may still show original token balances even after the estate cannot return the full amount. In some cases, distributions are only a fraction of the original balance, and the process can take years; the FTX estate is cited as an example.
During the 2026 reporting cycle, Koreans reported 10.5 trillion won in overseas digital assets, a 5.4% decline from a year earlier. Separately, from January 1, 2027, the country plans a combined 22% tax rate — 20% national plus 2% local — on annual crypto gains above 2.5 million won. The tax agency has not yet detailed how staking, airdrops, or acquisition costs will be handled, and critics argue that defining taxable events by administrative notice conflicts with the principle of “no taxation without law.”
