South Korea Reclassifies Crypto as Tangible Property to Enforce Tax Compliance

South Korea has intensified its enforcement of unpaid taxes by expanding the seizure of cryptocurrency assets, including cold wallets stored offline, as part of a broader strategy to integrate digital assets into the country's tax framework. Tax authorities in multiple districts have begun confiscating digital assets from residents who failed to settle local tax obligations, with local governments deploying automated systems to identify and freeze wallets linked to delinquents . These measures, which include the use of blockchain analytics tools, have already resulted in the seizure of 14,140 cases over four years, liquidating approximately $103 million in crypto assets .

The National Tax Service (NTS) has explicitly warned that non-compliant taxpayers may face home searches to confiscate cold wallets-offline storage devices such as hardware wallets or paper wallets-highlighting the government's ability to treat digital assets as tangible property . This escalation follows reports that tax authorities have leveraged blockchain tracking software to monitor transaction histories and detect attempts to hide assets offline. In one notable case, the Gangnam District in Seoul successfully seized crypto holdings from a high-value tax delinquent, collecting $101,000 in arrears after identifying the resident's digital assets through major exchanges .

Despite these advancements, challenges persist. Authorities face jurisdictional limitations when dealing with crypto assets held on overseas exchanges, as domestic law does not extend to foreign platforms. South Korea lacks tax cooperation agreements with countries like the United States, China, and Russia, complicating efforts to track and seize assets stored abroad . Additionally, data from the Financial Supervisory Service reveals that $55.6 billion worth of crypto assets were transferred from domestic exchanges to overseas platforms in the first half of 2025, indicating a growing trend of traders seeking to circumvent domestic oversight .

The expanded enforcement aligns with South Korea's broader regulatory push to combat tax evasion in the digital asset space. While the implementation of a 20% crypto tax on gains exceeding $35,900 annually has been delayed to 2027, the government remains committed to closing enforcement gaps between traditional finance and crypto holdings . Local authorities have also begun using preemptive warnings, with some districts collecting over $120 million in back taxes simply by notifying delinquents of potential seizures .