South Korea to Bolster Cross-Border Tax Transparency in Digital Asset Trading by 2027

South Korea is advancing its framework for cross-border tax transparency, aiming to integrate digital asset transaction data into an automatic exchange system by 2027. This initiative aligns with the planned implementation of delayed digital asset taxation policies and seeks to strengthen the government's ability to monitor overseas transactions and holdings. By expanding taxable and reportable assets, including stablecoins, non-fungible tokens (NFTs), and tokenized securities (TS), South Korea intends to curb offshore tax evasion more effectively. However, current challenges in tracking transactions through private wallets or decentralized exchanges (DEXs) could limit the system's effectiveness in the near term.

New Regulations for Cross-Border Information Exchange

The Ministry of Economy and Finance introduced two key regulatory measures in late October: the "Regulation for the Implementation of Automatic Exchange of Crypto Asset Information" and an amended "Regulation for the Implementation of Automatic Exchange of Financial Information." These proposals lay the groundwork for annual data exchanges concerning digital asset transactions among nations participating in tax information-sharing agreements. Data collection is set to begin with activities conducted in 2024, while official international exchanges with partner countries are expected to launch by 2027.

Mandatory Reporting for Domestic Crypto Providers

Domestic crypto service providers, including exchanges, wallet platforms, and brokers linked to South Korea, would face compulsory reporting obligations under the new framework. These entities must verify the tax residency status of clients through due diligence and submit transaction data to South Korea’s National Tax Service yearly by the end of April. Activities requiring disclosure include:

• Crypto-to-fiat transactions
• Crypto-to-crypto swaps
• Digital asset transfers exceeding $50,000
• Retail payments made in digital assets above the same threshold

Reports must provide detailed information such as asset types, transaction frequencies, transaction methods, and the total transaction value for the preceding calendar year.

Focus on Residency-Based Reporting

Tax reporting obligations will focus on residency rather than nationality. For example, a South Korean citizen residing and paying taxes in the U.S. while conducting Bitcoin (BTC) transactions on a domestic exchange would have their trading data reported to South Korea’s tax authorities and subsequently shared with corresponding U.S. agencies. On the other hand, foreign nationals residing and paying taxes in South Korea would be treated as domestic taxpayers; their information would remain within South Korea’s tax system without international data sharing.

Broad Scope of Covered Digital Assets

Most digital assets, including stablecoins, NFTs, and tokenized securities, will fall under the reporting and exchange framework. However, specific exclusions apply, such as Central Bank Digital Currencies (CBDCs) and various electronic money products, which are handled separately under financial information exchange systems. Additionally, accounts with minimal tax evasion risks—like capital accounts for company registration or low-value electronic money accounts—will be exempt from reporting requirements.

Strengthened Oversight Following Initial Tax Delays

South Korea initially postponed plans to tax individual digital asset holdings but has since committed to developing robust systems for monitoring foreign-based digital asset transactions. This effort aligns with last year’s move by the Ministry of Economy and Finance to join the Multilateral Competent Authority Agreement (MCAA) for the Exchange of Crypto-Asset Reporting Framework (CARF MCAA). Through this intergovernmental agreement, signatory countries exchange transaction data involving non-resident taxpayers annually, aiming to enhance global tax transparency and detect cross-border activities more efficiently.

Monitoring Challenges for Peer-to-Peer On-Chain Transactions

Despite regulatory advances, significant hurdles persist in tracking peer-to-peer (P2P) on-chain transactions that circumvent intermediaries altogether. Hong Pureun, an attorney and CEO of DeaScent, noted that data shared under these agreements primarily stems from reports filed by crypto service providers. Consequently, P2P transactions conducted without intermediary involvement may escape scrutiny.

Furthermore, the Korea Institute of Public Finance emphasized that the continuously evolving nature of digital assets introduces novel asset types and creative evasion strategies. This dynamic makes it difficult for governments to entirely eliminate tax avoidance through legislative measures alone. In response, the institute advocated for integrating real-time technical solutions capable of identifying innovative transaction methods alongside administrative and legal frameworks.

South Korea’s proactive steps in implementing these regulations reflect its commitment to harmonizing global tax compliance in the digital asset space. However, continued advancements in technology and collaboration with international partners will be critical in addressing persistent challenges, ensuring the sustainability and efficacy of this framework.