Domestic residents or corporations that establish or operate foreign trusts are now required to file a report detailing such trusts within six months from the end of the month in which the fiscal year ends (i.e., for individual taxpayers, by June 30, 2026).

The Korean tax authorities have gradually developed a sophisticated framework for managing offshore tax bases by imposing reporting obligations on residents and domestic corporations in relation to foreign financial accounts, foreign subsidiaries, and foreign real estate. Until recently, however, there had been criticism that the authorities lacked effective means to obtain information on foreign trusts. In response, new provisions establishing a reporting obligation for foreign trusts were enacted on December 31, 2023, following the examples set by other jurisdictions such as the United States, Canada, and the EU. These provisions took effect on January 1, 2025.

This article outlines the key aspects of the newly introduced foreign trust reporting obligation and related practical considerations.

1. Overview of the Reporting Obligation for Foreign Trusts

Under Article 58(3) of the International Tax Coordination Law (ITCL), a domestic resident or a domestic corporation (Domestic Settlor) that establishes a trust governed by foreign law and similar in nature to a trust under the Trust Act (Foreign Trust) must submit a report detailing the key terms of the trust and the value of the assets held in the trust within six months from the end of the month in which the fiscal year ends. In other words, a Domestic Settlor establishing a Foreign Trust is generally required to file a “Statement of Foreign Trust” (Form No. 51-2) by June 30 of the following year.

This reporting obligation serves as a systematic mechanism designed to enable the tax authorities to obtain information on Foreign Trusts and, further, to use such information as part of the tax base through the exchange of tax information with other jurisdictions. In addition to the existing reporting obligations on foreign financial accounts, foreign subsidiaries, and foreign real estate, the newly introduced Foreign Trusts reporting imposes an additional compliance burden on taxpayers.

2. Requirements for Filing

Where a Foreign Trust is effectively controlled by a Domestic Settlor, the details of the trust must be reported for the taxable year (or fiscal year) that includes the period from the date of establishment to the date of termination of the trust. For other types of trusts, the report must cover the taxable year or fiscal year in which the trust was established. In this regard, two specific scenarios should be taken into consideration.

1) New Establishment or Transfer of Assets: When a Domestic Settlor newly establishes a Foreign Trust or transfers assets to an existing Foreign Trust, the Domestic Settlor must submit a report within six months from the end of the month in which the relevant taxable year ends.

2) Continuing Control or Influence: Even for a pre-existing trust, if the Domestic Settlor continues to exercise substantive control or influence over the trust assets (e.g., in the case of a U.S. Grantor Trust), a reporting obligation arises on an annual basis. For example, even if a Foreign Trust was established before January 1, 2025, the reporting obligation will still apply if the trust remains in existence after 2025 and the Domestic Settlor continues to exercise substantive control over the trust assets.

In this regard, “substantive control or influence” refers to situations where the Domestic Settlor effectively exercises substantial control over the foreign trust assets, such as by retaining (i) the right to revoke the trust, (ii) the power to designate or change beneficiaries, or (iii) the right to receive residual assets upon termination.

3. Required Information to Be Reported

A Domestic Settlor subject to this reporting obligation must include in the Statement of Foreign Trust information such as the country of trust establishment, trust period, details of the parties to the trust (settlor, trustee, and beneficiaries), types and values of trust assets, and other relevant information.

The value of trust assets is determined based on fair market value (FMV), with the valuation date depending on the specific circumstances:

  1. the date of trust establishment (or transfer date) if the Domestic Settlor no longer has control thereafter;
  2. the fiscal year-end if the Domestic Settlor retains control; or
  3. the trust termination date if the Domestic Settlor had control until termination.

The method for determining the FMV varies depending on the type of trust assets:

  • Cash, listed shares, listed bonds, collective investment securities, and insurance products: Market value as of the valuation date;
  • Crypto assets: Market value as of the valuation date. If the asset is not traded in the trust’s jurisdiction, the FMV may be determined using the price from one of the foreign or domestic markets where it is traded, as selected by the Domestic Settlor;
  • Other assets: The price generally established through arm’s-length transactions among unrelated parties;
  • If FMV cannot be reasonably determined under the above methods, the acquisition cost shall be deemed the FMV.

4. Penalty for Non-Compliance and Request for Source of Funds

Failure to submit, or submission of a false Statement of Foreign Trust within the prescribed deadline, may result in an administrative penalty up to 10% of the value of the trust assets (capped at KRW 100 million). Furthermore, the tax authorities may request an explanation regarding the source of funds used to establish a Foreign Trust within the past 10 years, and such explanation must be furnished within 90 days. However, the penalty may be waived if there is a justifiable reason, such as circumstances making submission impossible or unnecessary within the deadline.

5. Implications and Recommended Actions

The newly introduced reporting obligation for Foreign Trusts, which takes effect in 2025, is expected to become another form of taxpayer compliance requirement related to offshore assets, alongside the existing obligations to report overseas financial accounts, foreign subsidiaries, and overseas real estate. While this obligation does not entail any direct tax payment and is fulfilled through reporting and documentation, failure to comply (or incomplete compliance) may result in administrative penalty. Residents and domestic corporations establishing new Foreign Trusts on or after January 1, 2025, must ensure compliance with this reporting obligation. Moreover, even pre-existing Foreign Trusts may still trigger the obligation if certain conditions are met. Accordingly, residents and domestic corporations managing assets through overseas trusts should review their offshore asset holdings and ensure that all relevant filings and submissions are completed by the first half of 2026 to avoid any omission or noncompliance.

If you have any questions regarding this article, please contact below:

Jung-hong KIM ([email protected])

Philje CHO ([email protected])

Kyu Bin (K) KANG ([email protected])

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