South Korea's Cold Wallet Crackdown Tests Compliance Limits in a Borderless Crypto Era

South Korea's National Tax Service (NTS) has escalated its enforcement of crypto tax compliance, announcing the authority to seize cold wallets stored in taxpayers' homes if they fail to settle outstanding tax liabilities. The NTS confirmed this measure in a statement reported by Hankook Ilbo on October 9, 2025, marking a significant expansion of its crackdown beyond digital assets held on domestic exchanges Hankook Ilbo^[1]. The agency now employs blockchain tracking software to monitor the transaction histories of non-compliant taxpayers and, if evidence of hidden offline assets is found, will conduct home searches to confiscate hard drives or PCs containing cold wallets Hankook Ilbo^[1].

The NTS has previously targeted crypto assets on domestic exchanges by issuing "right of inquiry and inspection" orders under the National Tax Collection Act. These orders compel exchanges to freeze delinquent accounts and transfer assets to government-controlled wallets for liquidation Hankook Ilbo^[1]. Over the past four years, the NTS and its regional offices have seized digital assets from 14,140 taxpayers, liquidating 146.1 billion won ($103 million) worth of cryptocurrencies Hankook Ilbo^[1]. The agency has also broadened its enforcement to include individuals delinquent on utility bills and traffic fines, with local governments adopting automated systems to identify and freeze wallets linked to tax arrears Coinpaprika^[2].

A key challenge for the NTS lies in enforcing compliance for assets held on overseas platforms. South Korean law does not apply to foreign exchanges, requiring international cooperation to trace and seize assets. The Multilateral Tax Administration Cooperation Agreement, which covers 74 countries, lacks coverage for jurisdictions like the United States, China, and Russia Hankook Ilbo^[1]. This gap has coincided with a surge in outflows from domestic exchanges: data from the Financial Supervisory Service (FSS) shows 78.9 trillion won ($55.6 billion) in crypto assets were transferred to overseas platforms and private wallets in the first half of 2025 Hankook Ilbo^[1].

The NTS's expanded powers reflect South Korea's broader effort to integrate cryptocurrencies into its tax framework. Authorities are preparing for the delayed implementation of a 20% crypto income tax in 2027, as outlined in a revised Income Tax Act passed by the National Assembly in October 2025 . This delay, now the third postponement of the tax, aims to address structural challenges in tracking overseas transactions and ensure fair enforcement . Meanwhile, the OECD-led Crypto-Asset Reporting Framework, set to take effect in 2027, will require South Korea to share crypto transaction data with 48 countries, further enhancing cross-border tax transparency .

Critics argue that the NTS's home search powers blur the line between virtual and physical property, raising privacy concerns. The policy also highlights the tension between regulatory oversight and the decentralized nature of crypto assets. As South Korea tightens enforcement, the global crypto market faces a pivotal test of how governments can balance compliance with the borderless, self-custody characteristics of digital assets Capwolf^[5].