A lack of withdrawal access does not excuse taxpayers from tax authority scrutiny. South Korea’s National Tax Service (NTS) issued a ruling on August 28, 2026, requiring citizens to report crypto accounts held on bankrupt foreign exchanges, despite the fact that trading and withdrawal services have completely halted.
The tax authority’s determination came after a South Korean taxpayer inquired about reporting requirements for assets trapped on an exchange that went bankrupt in November 2022. Even though the coins can no longer be accessed or moved to another wallet, the NTS applies different criteria when assessing the ownership status of citizens’ overseas assets.
Regulations on digital assets were incorporated into the foreign financial account reporting regime starting with the 2023 disclosure cycle. Authorities require taxpayers to report their holdings in June of the following year. The core requirement hinges on a balance threshold: the reporting obligation applies if the total foreign account balance exceeds 500 million won - equivalent to around $350,000 - at the end of any month in the relevant calendar year.
Why Frozen Accounts Are Still Counted
The NTS concluded that accounts on bankrupt exchanges do not lose their status as foreign financial accounts. The rationale focuses on the inception of the account. Because the wallet was opened through a virtual asset service provider (VASP) based overseas, the account remains subject to mandatory reporting regardless of whether the exchange entity is operating normally or undergoing liquidation.
On the other hand, users who hold their coins in self-custody are exempt. The NTS excludes self-custody wallets from foreign tax reporting rules. This exemption applies because non-custodial wallets operate outside corporate entity systems, and their users do not open accounts with any foreign VASP facility.
Shift in Reporting Numbers
The 2026 asset disclosure report recorded a total of 10.5 trillion won in South Korean funds held in overseas digital assets. That figure represents a 5.4% decline compared to the reporting records from the previous cycle.
A breakdown of the tax data shows diverging trends between retail and institutional groups: the value of crypto holdings among individuals rose 5.4% to reach 9.8 trillion won. In contrast, corporate crypto holdings plummeted 61.1%, leaving only around 700 billion won in official reports submitted to the state.
The tax ruling demands compliance even from those who have already suffered losses. The government does not consider whether citizens’ coins can be converted into cash today; as long as the value was once recorded above the threshold in a foreign company’s system, the reporting documents must still be submitted to tax authorities.
Reported by crypto.news.
Disclaimer: This article is for informational and educational purposes only, not financial advice. Cryptocurrency assets are highly volatile and carry significant risk. Always do your own research (DYOR) and never invest more than you can afford to lose.
