As countries grapple with balancing financial and crypto regulations, South Korea has issued a new warning to crypto holders: declare overseas crypto exchange holdings or face prosecution. This directive is part of a broader plan to establish stricter guidelines. According to a recent report, digital assets held on exchanges outside South Korea are classified as overseas assets.

### Mandatory Reporting of Overseas Financial Accounts

The warning, disclosed by Daekyung Kim, a tax accountant at Hana Bank Asset Management Group, via MoneyS, sets June 30 as the deadline for reporting overseas financial holdings. Under the Income Tax Act, domestic residents with a total balance exceeding 500 million won across all overseas financial accounts at the end of any month must declare these accounts by June 30 each year.

Kim noted that, despite this new regulation, authorities can still access residents' financial information through the Automatic Financial Information Exchange Agreement (FATCA) with the United States and the Automatic Financial Information Exchange Agreement (MCAA) with OECD countries, enforced in 2014.

Non-compliance results in penalties ranging from 10% to 20% of the account balance. If the unreported crypto holdings exceed 5 billion won (over $3.6 million), holders may face criminal prosecution. Jointly held accounts by couples or family members must also be reported if their combined balance is above 500 million won, though only one signatory is required to report the entire account.

### Residency Criteria for Reporting Obligation

The reporting process involves declaring the highest month-end balance of the year, using the exchange rate on that date to convert it into local currency for reporting. Both residents and domestic corporations must comply, as per the Income Tax Act. Residency criteria differ for foreigners and overseas Koreans based on their duration of stay in the country. Kim explained:

“According to the International Tax Adjustment Act, foreigners must have resided in Korea for five years or less within the past ten years prior to the end of the reporting year, while overseas nationals must have resided in Korea for one year prior to the reporting year's end. If the period is 183 days or less, the reporting obligation is exempted.”

Each June, the National Tax Service (NTS) sends notices to individuals expected to submit reports on overseas financial accounts based on past declarations, overseas fund transfers, and international information exchange data. Receiving a notice does not automatically confirm a reporting requirement.

Individuals who receive a notice must carefully evaluate whether they meet the criteria for mandatory declaration. Those with a reporting obligation who have not disclosed their accounts should be cautious, as the NTS may have acquired their account information through cross-border data sharing.