South Korea's Crypto Tax War: Raids Intensify as Overseas Gaps Fuel Evasion

The South Korean National Tax Service (NTS) has issued a stern warning to cryptocurrency holders, stating that tax delinquents may face home searches and the seizure of offline cold wallets to recover unpaid obligations. This directive, announced on October 9, underscores the agency's expanded enforcement capabilities to monitor and act on self-custody assets. According to NTS, blockchain tracking programs now enable authorities to trace non-compliant taxpayers' transaction histories, with physical raids permissible if coins are suspected to be hidden offline. The agency emphasized its authority to confiscate hardware or computers during such operations .

The NTS has already demonstrated its enforcement power over the past four years, seizing virtual assets from 14,140 delinquent taxpayers and liquidating 146.1 billion won ($103 million) worth of crypto. Data from the tax service revealed that 107.7 billion won of this amount was collected through voluntary payments or sales, while 38.4 billion won remains under seizure due to installment plans or administrative delays . Local governments have intensified efforts to combat tax evasion, with cities like Paju recently warning 17 residents to settle outstanding bills or face forced liquidation of their crypto holdings .

The NTS' strategy extends to domestic exchanges, where it can issue "right to question and inspect" orders to freeze accounts of habitual non-payers. If confirmed to hold crypto, exchanges suspend wallets and transfer assets to NTS-controlled addresses. Taxpayers then face ultimatums to settle debts or risk immediate liquidation at market prices . However, challenges persist with overseas exchanges, as South Korean law does not apply extraterritorially. The NTS relies on international cooperation, but lacks agreements with major jurisdictions like the U.S., China, or Russia. This gap has prompted a shift in behavior among South Korean crypto traders, with 78.9 trillion won ($55.6 billion) transferred to foreign or decentralized platforms in the first half of 2025 .

To address broader tax compliance, South Korea plans to enforce a 20% tax on crypto gains starting January 2025, with exemptions for profits below 50 million won ($35,900). The Democratic Party of Korea (DPK) cited legal clarity and financial stability as priorities, though enforcement of overseas transactions remains limited. Advanced tracking tools and exchange partnerships are being deployed to monitor domestic holdings, while legislative reforms aim to expand oversight by 2027 .

Recent regulatory updates further clarify compliance requirements. Non-custodial wallets, such as MetaMask, are exempt from overseas account reporting, as they lack centralized control over assets. However, residents must disclose foreign crypto accounts exceeding 500 million won ($360,000) by June 30, 2025, under the Overseas Financial Account Reporting Act. Penalties for non-compliance range from 10% fines to criminal charges for larger violations .

The NTS' aggressive stance reflects a broader push to modernize tax enforcement in response to evolving financial technologies. While domestic compliance has improved, the reliance on international cooperation and the rise of decentralized platforms highlight ongoing challenges. As South Korea tightens its grip on crypto taxation, the balance between enforcement and innovation remains a critical policy frontier.

Source: [1] South Korean Tax Agency: Pay Your Bills or We'll Take Your Crypto Cold Wallets (https://cryptonews.com/news/s-korean-tax-agency-pay-your-bills-or-well-take-your-crypto-cold-wallets/)

[2] Tax agency seizes over W146b in unpaid taxes through seizure of ... (https://www.koreaherald.com/article/10590016)

[3] South Korea tax agency seizes virtual assets - theasiareview.com (https://theasiareview.com/south-korea-tax-agency-seizes-virtual-assets-to-recover-unpaid-taxes/)

[4] South Korea to Enforce 20% Crypto Tax in 2025 After ... (https://coinedition.com/south-korea-confirms-2025-crypto-tax-eyes-overseas-transactions/)

[7] Koreans Must Report Overseas Accounts Exceeding KRW 500M ... (https://coinhubkorea.com/koreans-must-report-overseas-accounts-exceeding-krw-500m-by-end-of-june-crypto-assets-included/)

[8] South Korea excludes decentralized crypto wallets from overseas ... (https://crypto.news/south-korea-excludes-decentralized-crypto-wallets-from-overseas-declarations/)