Overseas Crypto Holders in South Korea Urged to Report Assets Amidst New International Data Sharing

South Korean residents with significant overseas cryptocurrency holdings face a looming deadline to report their assets, with new international data-sharing agreements set to close loopholes. Individuals like Mr. Kim, who holds 700 million won in a foreign crypto exchange and has never reported it, are now reconsidering their position due to impending stricter verification.

Since 2023, overseas virtual asset accounts are subject to the same reporting obligations as traditional foreign financial accounts. If the total balance of overseas accounts, including crypto, exceeds 500 million won on any day of the month, it must be reported to the National Tax Service (NTS) by June of the following year. Failure to comply can result in a fine of 10% of the unreported amount, with penalties accumulating annually. Holdings exceeding 5 billion won can lead to criminal prosecution and public disclosure of names.

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Many investors misunderstand the reporting obligation for overseas virtual asset accounts. Overseas virtual asset accounts have been included in the scope of overseas financial account reporting since 2023.

Previously, the NTS struggled to track overseas crypto assets due to a lack of information exchange. However, the new Common Reporting Standard (CRS) for crypto-assets (CARF), adopted by 48 OECD countries, will enable automatic annual exchange of crypto transaction data. This means South Korea will begin receiving detailed information on its residents' overseas crypto activities from January 1, 2023, onwards. With most major crypto exchange locations participating, evasion is becoming virtually impossible.

Tax experts strongly advise investors who have not reported their overseas crypto assets exceeding 500 million won to file a voluntary disclosure immediately. Prompt action can lead to a reduction of up to 90% in fines and prevent individuals from becoming targets for criminal investigation or public naming. The NTS is expected to start issuing requests for explanation for suspected non-compliance, after which relief becomes difficult. Investors are also encouraged to organize their transaction records, including acquisition dates, costs, and sources of funds, to prepare for future tax system implementations.

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The belief that virtual assets are decentralized and thus not exposed is spreading among investors. However, this premise is crumbling with the cooperation of 48 countries. In an era where transaction information is exchanged automatically, avoiding reporting is a foolish choice that can lead to greater penalties. Diligent reporting is the best tax-saving strategy for virtual assets as well.