South Korea Issues Warning to Citizens: Declare Overseas Crypto Holdings or Face Prosecution

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As an experienced financial analyst, I believe that South Korea’s decision to require mandatory reporting of overseas crypto exchange holdings is a necessary step towards ensuring financial transparency and compliance with international tax laws. The country’s implementation of similar regulations for overseas financial accounts several years ago has proven effective in preventing tax evasion and money laundering activities.

In an effort to strengthen financial and cryptocurrency regulations, South Korea has issued a fresh warning to crypto investors holding assets through overseas exchanges. Failure to disclose these holdings could result in legal consequences. Notably, these digital assets are classified as foreign assets according to a recent report.

Mandatory Reporting of Overseas Financial Accounts

According to Daekyung Kim, a tax accountant at Hana Bank Asset Management Group, who shared this information with MoneyS, there’s a requirement for reporting overseas financial holdings. Specifically, individuals with a combined total exceeding 500 million won in all their foreign accounts by the month-end must submit a declaration to the relevant authorities no later than June 30 each year, as stipulated by the Income Tax Act.

He went on to explain that while this regulation currently exists, local authorities are able to access residents’ financial information. This is a result of the implementation of the Automatic Financial Information Exchange Agreements (FATCA and MCAA) between the United States and OECD countries in 2014.

To maintain regulations, the country imposes a fee on individuals who neglect to disclose their account information. The penalty varies between 10% and 20% of the account value. Those with undeclared crypto wallets or balances exceeding 5 billion won ($3.6 million) risk facing criminal charges.

Couples or family members who share joint accounts with over 500 million won in total balance are required to report these accounts. It’s sufficient for just one person who is a signatory on the account to submit the report, fulfilling the reporting obligation for everyone involved.

Residency Criteria for Reporting Obligation

As a crypto investor, I need to go through a reporting process that involves sharing some specific information. One of these details is identifying the month-end balance with the highest value throughout the year. To complete my report accurately, I will also need to use the exchange rate that was in effect on the date of this maximum balance for the purpose of converting it into the local currency.

According to the Income Tax Act, this obligation to report financial accounts held overseas applies to both residents and domestic corporations. The definition of residency varies for non-residents and overseas Koreans depending on the length of their stay in the country, as Kim clarified.

As a researcher examining the International Tax Adjustment Act (National Taxation Act), I’ve discovered that foreign residents in Korea must have lived there for no more than 5 years out of the past 15 years leading up to the end of the reporting year. Additionally, overseas nationals are required to reside in Korea during the year preceding the reporting year’s end. If an individual’s presence in Korea amounts to 183 days or fewer within a given year, they are exempt from reporting obligations.

In greater detail, the latest report disclosed that each June, the National Tax Service (NTS) issues notices to people presumed to file reports on their overseas financial accounts. The NTS uses multiple data sources including past declarations, foreign fund transfers, and information obtained through international information exchange agreements for this purpose. Yet, receiving such a notice does not automatically mean a reporting obligation is in place.

People who have been given a notification need to carefully consider if they qualify for mandatory declaration. It’s important to note that even if you haven’t received a notification, but have a duty to report and haven’t disclosed your accounts, you should be cautious. The NTS might have acquired information about those accounts through international data sharing.

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2024-04-30 17:45