South Korea plans wallet tracing tools to enforce 2027 crypto tax

South Korea’s National Tax Service has said it will introduce commercial crypto tracing software used by domestic and overseas investigative agencies as it prepares to tax income generated through private wallets from 2027.

Digital Asset reported on Aug. 31, citing responses provided by the NTS to People Power Party lawmaker Kim Sang-hoon, that the agency plans to use software capable of tracing and analyzing digital asset movements between wallets. Similar tools are used by prosecutors, police and the U.S. Internal Revenue Service.

The plan addresses one of the main enforcement problems surrounding South Korea’s incoming cryptocurrency income tax: authorities have limited visibility into transactions conducted through wallets controlled directly by taxpayers.

The NTS acknowledged that the nature of private wallet transactions makes it difficult to identify every unreported transaction. Tax officials said they would continue working to prevent gaps in enforcement, including through the planned tracing system.

South Korea plans to trace private wallet transactions

Self-custody does not remove a taxpayer’s liability under the planned regime. South Korea’s Ministry of Economy and Finance and the NTS previously told Kim’s office that income from transferring or lending digital assets can be taxable regardless of whether the assets are held in a private wallet or on an overseas exchange.

Crypto.news previously reported that South Korea had confirmed the planned tax would cover private wallets and foreign exchanges when the rules take effect.

The tax will apply to qualifying digital asset income generated from Jan. 1, 2027. Annual gains above a 2.5 million won deduction will face a 20% national income tax, with a 2% local income tax bringing the combined rate to 22%.

Taxpayers will not file returns for 2027 income immediately when the rules take effect. The first filing period is scheduled for May 2028, when investors will report qualifying income generated during the previous calendar year.

South Korean authorities have spent months preparing systems for the rollout. The NTS has completed development of a tax-source management system and has been building an integrated analysis system for digital asset taxation, according to government responses previously submitted to Kim’s office.

Work has extended to centralized exchanges. The NTS has been preparing implementation guidance with Upbit operator Dunamu, Bithumb, Coinone, Korbit and Gopax, covering records and other information needed to calculate taxable cryptocurrency income.

The preparations follow several delays to the tax, which was created through amendments to the Income Tax Act. Implementation was initially scheduled for 2022 before being postponed to 2023, 2025 and eventually 2027.

The government kept that date unchanged when it finalized its tax proposal in August, although the National Assembly can still amend the provisions before they take effect.

CARF will cover data held by overseas crypto platforms

For cryptocurrency held through foreign platforms, South Korea plans to rely partly on the OECD’s Crypto-Asset Reporting Framework, or CARF, to obtain transaction information from participating jurisdictions.

CARF creates a system through which tax authorities can automatically exchange information concerning reportable crypto asset transactions. South Korean officials have treated the framework as part of their preparations for identifying taxable activity conducted outside domestic exchanges.

Questions have emerged over jurisdictions where the first CARF information exchanges will occur later than South Korea’s 2027 tax start date.

The United Arab Emirates is one example raised in the material provided by Kim’s office because major international crypto businesses operate from the country. UAE government guidance states that its CARF rules will apply to the 2027 calendar year, with the first exchanges of information expected in 2028.

A Ministry of Economy and Finance official told Digital Asset that this timetable would not necessarily create a one-year information gap for South Korean taxation because information exchanged in 2028 would concern transactions conducted during 2027.

South Korea’s own filing schedule works on a similar timeline. Income earned from crypto transactions during 2027 will be reported by taxpayers in May 2028, meaning the first filing period comes after the year in which the taxable transactions occur.

The NTS gave Kim’s office the same explanation, saying the UAE’s first CARF information exchange in 2028 is expected to cover crypto asset transactions attributable to 2027.

Whether information concerning Binance would be supplied through the UAE under CARF has not been confirmed, according to the original report.

Private wallets remain harder for tax authorities to track

CARF does not remove the separate enforcement problem created by self-custodied assets because private wallets can operate without a centralized exchange maintaining the same type of customer and transaction records.

The NTS told Kim’s office that practical limits remain when authorities attempt to identify unreported private wallet activity. Its proposed use of commercial tracing software would give investigators another way to follow transfers between blockchain addresses when examining potentially taxable transactions.

South Korean authorities have already been expanding controls around transfers involving self-hosted wallets and foreign platforms. The Cabinet approved rules in August that tighten overseas crypto transfers by applying risk-based controls to transactions involving foreign exchanges and personal wallets.

Under those amendments, transfers of at least 10 million won involving overseas exchanges or private wallets require domestic exchanges to operate internal suspicious-transaction monitoring systems. Higher-risk counterparties can face transfer restrictions, while transfers between registered Korean virtual asset service providers will fall under expanded Travel Rule requirements.

Tax authorities have separately examined how crypto held outside centralized exchanges can be handled during enforcement proceedings. In July, officials proposed a self-custodied crypto seizure framework that would address assets controlled through private keys.

The proposal called for changes to the Criminal Procedure Act to establish clearer procedures for seizing such assets. Officials recommended warrant requirements and court-supervised joint wallets for storing cryptocurrency obtained during enforcement proceedings.

Political disagreement over the underlying crypto tax remains unresolved ahead of the 2027 deadline. People Power Party lawmakers have pursued several routes to stop or postpone the levy, including legislation seeking its repeal and another proposal that would move implementation to 2030.

Lawmaker Park Soo-young argued in August that the tax could drive more Korean investment capital toward overseas cryptocurrency platforms. The government, however, has continued preparing for the existing timetable, under which taxable crypto income begins accruing on Jan. 1, 2027 and the first returns covering that income are filed in May 2028.