In a bid to tighten financial regulations and ensure compliance with tax laws, South Korea has issued a stern warning to crypto holders, urging them to declare their overseas crypto exchange holdings by June 30 or risk facing prosecution. The move is part of the country's efforts to implement more stringent guidelines in the crypto space amidst increasing global regulatory scrutiny.

The warning, disclosed by Daekyung Kim, a tax accountant at Hana Bank Asset Management Group, underscores the importance of reporting overseas financial holdings under the Income Tax Act. According to the announcement, South Korean residents must declare any overseas financial accounts with a total balance exceeding 500 million won by the end of any month. Failure to comply with this regulation could result in penalties ranging from 10% to 20% of the account balance, with potential criminal prosecution for holders with unreported balances exceeding 5 billion won.

Furthermore, the reporting obligation extends to jointly held accounts shared by couples or family members, where the combined balance exceeds the threshold. However, only one account holder is required to report the entire balance to fulfill the reporting obligation for all parties involved.

Importantly, the reporting process necessitates the declaration of the highest total month-end balance across the year, with conversion into the local currency based on the exchange rate at the time of the highest balance. This requirement applies to both residents and domestic corporations, as mandated by the Income Tax Act.

Residency criteria play a crucial role in determining reporting obligations, with variations for foreigners and overseas Koreans based on their duration of stay in the country. While foreigners must have resided in Korea for five years or less from ten years prior to the reporting year, overseas nationals must have resided in Korea for at least one year prior to the reporting year ending date to be subject to reporting obligations.

Moreover, the National Tax Service (NTS) conducts annual assessments to identify individuals required to submit overseas financial accounts, utilizing various data sources such as past declarations, fund transfers, and information from international exchange agreements. Individuals who receive notices from the NTS must carefully evaluate their reporting obligations, as failure to disclose accounts could lead to enforcement actions.

The warning underscores the South Korean government's commitment to ensuring compliance with tax laws and combating illicit financial activities in the crypto sector. With increased regulatory oversight and enforcement measures, crypto holders are urged to adhere to reporting requirements to avoid potential legal consequences.