Reportable foreign currency transactions - capital
As opposed to foreign currency transactions of a revenue nature, any foreign currency transactions of a capital nature require the filing of forms or reports with the designated foreign exchange bank or the Bank of Korea.
In this regard, a resident individual or company must report foreign currency transactions of a capital nature to the designated foreign exchange bank or the Bank of Korea (i.e. the Central Bank of Korea) in advance. Such foreign currency transactions include, but are not limited to, investment in a local company by way of incorporation, a capital increase of an existing company, or an intercompany loan. Accordingly, without such reporting, a local bank will not process such funds until the local recipient duly reports such foreign currency transactions to the relevant authorities.
Foreign currency transactions that do not require any reporting or declaration
Even with the revenue of foreign currency transactions, a local bank in Korea will require the submission of supporting documents. For instance, in order for a person to pay a foreign vendor's invoice (i.e. make an international bank transfer to a foreign vendor), the person is required to submit the relevant invoice and contract or agreement.
On the same note, when a company or individual receives a payment from an overseas entity, the local resident company or individual is often required to substantiate the source of the payment by submitting the relevant documentation.
Reportable foreign currency transactions - revenue
One of the unique foreign currency transactions of a revenue nature, which require a foreign company's attention is a set-off of intercompany payables against intercompany receivables. A resident company in Korea is not permitted to offset intercompany payables against intercompany receivables with a foreign-related entity without reporting the set-off to the foreign exchange authority first.
Another example would be making a cross-border payment to a third party (often referred to as a third-party payment). If a local company makes a payment to a third party abroad with whom the payor has not been in any contractual or business relations, such a payment would trigger a breach of the relevant foreign currency laws and regulations.
When such payments are necessary, the payor must seek approval from the foreign exchange authority first.
It should be noted that the convention of the Foreign Exchange Transaction Act (FETA) or the related regulations can amount to a criminal offence.
Accordingly, a foreign investor should seek advice from a qualified advisor before making foreign currency transactions with a local Korean-related entity or subsidiary.
If you have any questions or concerns regarding foreign currency transaction matters, please feel free to contact us at info@uhy.co.kr.
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