South Korea Tax Agency Says Bankrupt Overseas Crypto Exchanges Still Trigger Account Reporting

South Korea’s National Tax Service said accounts held with overseas virtual-asset exchanges remain subject to foreign financial account reporting even if the exchange has gone bankrupt and trading or withdrawals have been suspended.

Digital Asset reported on September 7 that the National Tax Service said on August 28 that accounts opened by South Korean residents with overseas virtual-asset service providers for cryptocurrency trading remain reportable even after the provider enters bankruptcy.

The interpretation came in response to an inquiry from a South Korean resident identified only as A, a creditor of an overseas exchange that went bankrupt in November 2022. A had a balance in the account when the exchange failed and has since recovered part of the money through the bankruptcy estate’s distribution process into a foreign-currency account in South Korea held in A’s name.

A asked whether the account still fell under foreign financial account reporting rules after the bankruptcy made normal trading and withdrawals impossible and the account effectively became a bankruptcy claim. The tax agency said the reporting obligation applies as long as the person holds an account with an overseas virtual-asset service provider, regardless of whether the exchange has gone bankrupt.

Under the Adjustment of International Taxes Act, residents and domestic corporations must report foreign financial accounts to the relevant tax office in June of the following year if the combined balance exceeds 500 million won ($361,000) on any month-end during the year. Virtual assets were added to the foreign financial account reporting regime in 2023, alongside deposits and stocks.

Of the foreign financial accounts reported this year, virtual assets accounted for 10.5 trillion won ($7.59 billion), down 5.4% from a year earlier. Reported holdings by individuals rose 5.4% to 9.8 trillion won ($7.09 billion), while corporate holdings fell 61.1% to 700 billion won ($506 million). The National Tax Service said a broader decline in virtual-asset prices contributed to the drop in the overall reported total.