Amendments to the Foreign Exchange Transactions Regulation (the “FX Regulation”) will become effective beginning January 1, 2019 (the “Amendments”). The Amendments were proposed to relax the complex and burdensome existing regulatory regime and reporting obligations, particularly from the perspective of small and medium-sized enterprises, as well as to adapt to the increasing utilization of electronic and online/mobile payment means.
Through the Amendments, the Korean government seeks to create greater efficiencies and improve foreign exchange practices, thereby increasing convenience for Korean residents and enhancing the ability of Korean companies to engage in overseas businesses.
A summary of the Amendments (by category) are set forth below:
I. Amendments to Promote Innovation in Foreign Exchange Transactions
1. Approval of overseas remittances by securities firms and card companies
Previously, foreign exchange banks and small-sum remittance businesses were permitted to process overseas remittances of funds. The Amendments permit securities firms and credit card companies to make small-sum overseas remittances (US$3,000 per instance, up to US$30,000 per year).
2. Increase overseas remittance limits for NH Bank and Suhyup Bank
In an effort to improve the financial services infrastructure for farmers and villagers, the Amendments will increase the annual limit for overseas remittances, from US$30,000 to US$50,000 per person.
3. Additional support for small-sum overseas remittances
The Amendments will increase the annual limit per person made by small-sum remittance businesses, from US$20,000 to US$30,000. In addition, small-sum remittance businesses are now permitted to receive funds settlement services from securities firms and credit card companies, in addition to the previously permitted banks.
4. Approval of overseas payments through electronic payment means
The Amendments will increase the scope of permissible payment means to include overseas remittances made through bank QR codes and credit card companies’ electronic prepayment and other electronic payment means, as provided in the Electronic Financial Transactions Act (the “EFTA”).
5. Acceptance of additional foreign exchange methods
The scope of permissible payment means is amended to permit foreign exchange businesses to perform foreign currency conversions pursuant to electronic prepayment means and other electronic payment means (as provided in the EFTA).
6. Approval of online foreign exchange and autonomous exchange services
The Amendments will allow residents to make applications for foreign currency conversions online, and take delivery of foreign currency at autonomous exchange services (at airports or other locations).
II. Amendments to Improve the Convenience of Foreign Exchange Transactions
1. Reducing the documentary burden for foreign exchange transactions
Permitted remittance service providers will accept the submission of documentary evidence in electronic form (fax, PDF). In addition, the daily limit for receipt of funds from overseas without requiring the submission of documentary evidence will be increased from US$20,000 to US$50,000.
2. Easing of prior notification requirement and change in the governmental agency to which notification must be made
Certain financial transactions, such as the payment of deposits of under $10,000 in relation to leases for overseas real estate rental payments, tax refunds paid to non-Korean tourists, or payment of foreign taxes, are exempt from prior notification requirements.
The non-reportable limit for remittances in relation to the acquisition of overseas real estate prior to report will be increased from US$100,000 to US$200,000.
In cases where it is practically difficult to recognize the import of payment means received from overseas sources, the recipient is now permitted to submit an ex post report within 30 days.
The Amendments also provide for greater coordination among reporting agencies for similar types of capital transactions, reducing the burden on residents. Previously, residents who acquired overseas real estate for purposes of residing for a period of 2 years or longer was required to file a report with a foreign exchange bank, and with the Bank of Korea in the case of less than 2 years. Both of these reporting requirements are now required to be submitted to a foreign exchange bank. In addition, reporting requirements for Korean Won-denominated transactions between non-Korean residents, which previously were required to be submitted to the Ministry of Economy and Finance, may now be submitted to the Bank of Korea.
3. Facilitation of overseas expansion by venture businesses
Small and medium-sized ventures intending to expand overseas can now seek approval from the Ministry of SMEs and Startups, in addition to the relevant ministry governing the intended business purpose and the Korea International Trade Association.
4. Relaxation of documentary burden related to foreign direct investment
The Amendments have reduced the reporting requirements following foreign direct investments. In the case of foreign direct investments ranging from US$1 million to US$2 million in size, the filer can now submit a simple investment status report rather than being required to submit a business performance report and audit report. In the case of foreign direct investments ranging from US$500,000 to US$1 million, no reporting is required (previously, a simple investment status report was required to be submitted).
In addition, the Amendments have eliminated the requirement to submit a business plan upon remitting funds prior to a foreign direct investment report.
1. A business engaged in foreign currency exchange business seeking to sell foreign currency to customers valued at less than US$2,000 can make their initial purchase of foreign currencies from banks (previously, such businesses could only purchase foreign currency from banks in transactions involving non-residents).
2. A business engaged in foreign currency exchange business that changes its head office can now make an ex post notification as opposed to a pre-notification.
This update is intended as a summary news report only, and not as advice. For legal advice, please inquire with your contact at Bae, Kim & Lee LLC, or the following authors of this bulletin: