By
Mayowa Adebajo
April 29th, 2024
The warning stated that June 30 had been earmarked for reporting overseas financial holdings.
As different countries try to find a balance in financial and crypto regulation, South Korea has issued a new warning to crypto holders to declare their overseas crypto exchange holdings or face prosecution which is part of its plan to create more stringent guidelines. A recent report revealed that digital assets held on exchanges outside South Korea are considered overseas assets.
Mandatory Reporting of Overseas Financial Accounts
The warning, which was revealed on MoneyS by Daekyung Kim, Tax accountant at Hana Bank Asset Management Group, stated that June 30 had been earmarked for reporting overseas financial holdings. The release mentioned that under the Income Tax Act, domestic residents whose total balance across all overseas financial accounts is above 500 million won at the end of any month must ensure they declare these accounts to authorities by June 30 every year.
He further mentioned that although this regulation is now in place, authorities still have a way of knowing residents financial information, and this is due to the enforcement of the Automatic Financial Information Exchange Agreement (FATCA) with the United States as well as the Automatic Financial Information Exchange Agreement (MCAA) between the Organization for Economic Co-operation and Development OECD countries in 2014.
To ensure compliance, the country has imposed a penalty for individuals who fail to report the details of account holdings. The fine ranges from 10% to 20% of the account balance, and if the unreported crypto trader wallet or account balance is above 5 billion won (over $3.6 million), such holders may face criminal prosecution.
In fact, jointly held accounts shared by couples or family members are also to be reported if the combined balance is above 500 million won. However, only one of them who is a signatory to the account is enough to report the entire account to satisfy the obligation for all.
Residency Criteria for Reporting Obligation
The reporting process requires some details, such as declaring the highest total month-end balance across the year and using the exchange rate on the date of the highest balance to convert it into the local currency for reporting purposes.
This overseas financial account reporting duty is for both “residents and domestic corporations,” as stated by the Income Tax Act. The residency criteria differ for foreigners and overseas Koreans based on their duration of stay in the country. Kim emphasized this by stating:
“According to the International Tax Adjustment Act (National Taxation Act), foreigners must have a residence in Korea for 5 years or less from 10 years prior to the end of the reporting year, and overseas nationals must reside in Korea from 1 year prior to the reporting year ending date. If the period is 183 days or less, the reporting obligation is exempted.”
More so, the news revealed that every June, the National Tax Service (NTS) sends out notices to individuals expected to submit overseas financial accounts based on various data sources such as past declared history, overseas fund transfers, and information gathered through international information exchange agreements. However, receiving such a notice does not necessarily confirm a reporting requirement.
Individuals who have received a notice must carefully assess whether they meet the criteria for mandatory declaration. Even without receiving notice, those with a reporting obligation who have not disclosed their accounts should be wary, as the NTS may have obtained their account information through cross-border data sharing.