Korea, Republic of

Exchange controls

Most transactions involving foreign exchange generally do not require approval or reporting under the Foreign Exchange Transaction Act (FETA), with a few exceptions as prescribed by the FETA. Receipt of foreign exchange from outside Korea is freely permitted, and payments to foreign companies for non-capital transactions are not regulated. Most restrictions on Korean companies’ foreign currency transactions with foreigners have been removed. However, the government continues to monitor certain flows of foreign currency in an attempt to minimise incoming speculative currency and outgoing capital flight.

Advance reporting is no longer required for certain capital transactions falling below specified thresholds, while post-transaction reporting is mandatory. For instance, foreign currency loans obtained by a Korean company of which accumulated balance during a year is USD 50 million or less or loans provided by a Korean resident to its foreign subsidiary of which repayment date is less than one year should be reported to a foreign exchange bank within one month from the date when the transaction is completed. Foreign currency deposits should be reported in advance unless expressly designated for post-transaction reporting. The agency to which the reporting should be made differs based on materiality of the transaction amount or transaction type.

In addition, unless expressly specified for the exemption from reporting, post-transaction reporting to the appropriate agency is required for transactions such as netting receivables and payables with a foreign resident, third party payments where a payment is made to a foreign resident other than the transaction counterpart, and cross calculation, which is similar to netting, but the concerned company opens a bank account in which the offsetting takes place for future receivables and payables. 

Automatic exchange of tax information

The Korea-United States (US) agreement on Automatic Exchange of Tax Information was ratified by the National Assembly on 7 September 2016. Based on the agreement, the tax authorities of both countries collect financial information on financial accounts held by individuals and entities and exchange this information. Korea-based financial institutions conduct their Foreign Account Tax Compliance Act (FATCA) due diligence procedures and report information on certain financial accounts held by US individuals and entities to the NTS, and then, the NTS will report this information to the US Internal Revenue Service (IRS). The type of information generally includes the name, address, tax identification number, account number, account balance as of the end of a relevant reporting period, and gross amount of income (such as interest and dividends). Korea committed to implement the OECD Common Reporting Standard Multilateral Competent Authority Agreement in October 2014, ensuring automatic exchange of information with signatories of the Agreement (126 including Korea as of March 2025).

Since 2017, Korea has exchanged with foreign countries certain information on financial accounts and income according to the Multilateral Competent Authority Agreements to automatically exchange information based on Article 6 of the Convention on Mutual Administrative Assistance in Tax Matters. The NTS should be motivated to actively mobilise its infrastructure to exchange offshore financial and non-financial tax information for the purpose of pursuing taxpayers suspected of being engaged in offshore tax avoidance and conducting tax audits of such tax avoidance.  At the end of December 2024, the tax law has been amended to extend the automatic exchange of financial transaction information to include 'transactions involving crypto assets' on a reciprocal basis between Korea and its contracting states.  This amendment will take effect on January 1, 2026.

Choice of business entity

The following types of commercial entities are permitted in Korea:

• Corporation (Hoesa): There are five classes of corporation, outlined as follows:
  • Limited corporation:
    • Chusik Hoesa (CH): A corporation incorporated by one or more promoters, with each shareholder’s liability limited to the amount of contributed capital. This type of entity is the most commonly used in Korea.
    • Yuhan Hoesa (YH): A corporation incorporated by one or more members, with each member’s liability limited to the amount of that member’s contribution to the corporation.
    • Yuhan Chegim Hoesa: A corporation incorporated by one or more members, with each member’s liability limited to the amount of that member’s capital contribution. With significantly fewer restrictions for establishment and operation, Yuhan Chegim Hoesa provides more flexibility and self-control than YH.
  • Unlimited corporation:
    • Hapmyong Hoesa: A corporation incorporated jointly by more than two members who are responsible for corporate obligations if the assets of the corporation are insufficient to fully satisfy those obligations.
    • Hapja Hoesa: A corporation composed of one or more partners who have unlimited liability and one or more partners with limited liability.

• Partnership: Hapja Johap is a legal form of partnership allowed under the Commercial Code.
• Joint venture: A joint venture is generally established as a domestically incorporated corporation whose shareholders have limited liability regarding the obligations of the corporation under the Commercial Code.
• Branch: A foreign corporation can perform its business operation in Korea by setting up a taxable presence in the form of a branch office. The branch office is subject to normal CIT rates on Korean-source business income under the CITL.
• Liaison office: A foreign corporation can establish a liaison office, which is not allowed to perform preliminary or auxiliary business activities in Korea.
• Sole proprietorship: Sole proprietorship is not a legal form of entity in Korea.

Guidance on taxation of a foreign transparent entity

A foreign transparent entity, such as a partnership, that is established outside Korea (only if having no place of effective management in Korea) would be categorised as a foreign corporation under the Korean tax law if one of the following conditions is met:

• Endowed with a legal personality pursuant to the law of the country in which it was established.
• Only comprised of partners with limited liability.
• A domestic entity whose characteristics are the same as, or similar to, the characteristics of a foreign entity defined as a corporation under Korean laws.

If a foreign transparent entity does not meet any of the above, it is not treated as a corporation under the Korean tax law. Consequently, any Korean-source income earned by the foreign transparent entity is regarded as being earned by each investor and taxed at the investor level.  

If a foreign corporation receives Korean-source income via an overseas investment vehicle (OIV) as defined under the Korean tax law, it would be regarded as the substantive owner earning the Korean-source income. However, under certain circumstances, an OIV can be deemed as a substantive owner of Korean-source income if it meets certain conditions, such as bearing income tax liabilities on the Korean-source income in its country of establishment or being recognised as a beneficial owner under a relevant tax treaty executed between the country and Korea and satisfying requirements for the tax treaty benefits under an applicable tax treaty. If a list of investors to an OIV is not disclosed, however, the OIV shall be subject to taxation as a non-resident according to the Korean tax laws.