South Korea’s National Tax Service has determined that residents must continue reporting cryptocurrency accounts held with overseas exchanges that have entered bankruptcy, even if trading and withdrawals are no longer possible. The interpretation, issued on August 28, addresses a specific query from a taxpayer who held assets on a foreign platform that collapsed in November 2022.

Ruling Clarifies Ongoing Disclosure Duty

The taxpayer had opened an account with an overseas virtual asset service provider to trade digital assets. After the exchange filed for bankruptcy, the account holder lost the ability to trade or withdraw funds and became a creditor in the distribution process. Partial recoveries were later deposited into a domestic foreign-currency account.

The National Tax Service concluded that the original overseas account remains subject to foreign financial account reporting rules. The agency stated that an account opened with a foreign virtual asset service provider retains the reporting obligation regardless of the operator’s subsequent insolvency or the customer’s loss of normal control over the assets.

The decision concerns disclosure requirements only. Reporting an account does not by itself establish that tax is owed on its full balance.

Threshold and Filing Rules

Under South Korea’s Adjustment of International Taxes Act, residents and domestic corporations must report overseas financial accounts when their combined balances exceed 500 million won, approximately 350,000 U.S. dollars, at the end of any month during the calendar year. Balances across all qualifying foreign accounts are aggregated for the threshold test.

Filings are due in June of the following year and must identify the foreign institution, account details, and the reportable balance. Digital assets held through overseas cryptocurrency exchanges have been included in the regime since the 2023 reporting cycle, alongside foreign deposits, securities, and other covered financial assets.

Self-custody wallets are treated differently and are not required to be reported, as they are not accounts opened with overseas virtual asset service providers. The latest ruling makes clear that an exchange’s bankruptcy does not create a comparable exclusion.

Valuation Challenges for Frozen Balances

While the reporting obligation is confirmed, determining the correct value of a disputed or partially recoverable bankruptcy claim presents practical difficulties. An exchange interface may continue to display a customer’s original token balance even when the bankruptcy estate cannot return the full amount. Distributions ultimately received can differ substantially from the displayed figure and may take years to complete.

Affected taxpayers are advised to retain monthly balance records, exchange statements, bankruptcy claims, and distribution documentation. These materials can help establish what existed in the account and what was later recovered.

Recent Disclosure Figures

In the 2026 reporting cycle, Korean taxpayers disclosed 10.5 trillion won in overseas digital assets, a 5.4 percent decline from the prior year. Individual holdings rose 5.4 percent to 9.8 trillion won, while corporate holdings fell 61.1 percent to approximately 700 billion won. The National Tax Service attributed the overall reduction in part to lower asset prices.

Total reported overseas financial accounts reached 107.1 trillion won, with the number of reporting individuals and companies increasing 9.1 percent to 7,484.

Separate From Upcoming Gains Tax

The foreign account disclosure rules are distinct from South Korea’s planned tax on cryptocurrency gains. Beginning January 1, 2027, a combined 22 percent rate—20 percent national tax plus 2 percent local income tax—is scheduled to apply to annual digital asset income above a 2.5 million won deduction. The tax will cover activity on both overseas exchanges and private wallets.

Residents whose combined overseas account balances exceeded the threshold during 2026 are generally required to file disclosures in June 2027. Customers of bankrupt platforms should maintain detailed records even if the exchange no longer provides normal account access.