Relaxing Act
The Korean government is planning to revise the Foreign Exchange Transactions Act in the near future. It is expected according to the revised law that a lot of duties of prior notification will be replaced with follow-up reports. For example, the minimum amount of foreign direct investment (FDI) subject to prior notice is to be adjusted upward from US$500,000 a year, while the same duty on individuals and corporations acquiring real estate properties abroad is to be repealed. The government is predicting that the shift of the focus toward ex post facto notices from prior notifications for tax evasion prevention will help it reduce its foreign exchange reserves to an appropriate level by boosting overseas investment by companies and individual investors. This is the first time since the enactment in 1999 that the Foreign Exchange Transactions Act is overhauled.
The duty of prior notice has significantly hindered FDI. According to current law, FDI is subject to prior notice without exception when the annual total amount is US$500,000 or more, and the same procedure has to be repeated when the amount changes during the course of the investment. This has slowed down the decision-making process and discouraged investors.
The government is looking to simplify the Foreign Exchange Transactions Act at this time by repealing some regulations for the prevention of offshore tax evasion. A typical example is the deregulation applied to third-party payments involving the main office of a company in Korea, its overseas corporation, and the latter’s local business partner. At present, the third-party payment has to be reported to and permitted by the Bank of Korea when the amount exceeds US$10,000 per case.
According to the government’s plan, a draft of the revision is prepared by the end of this year through commissioned research and public hearings before submission to the National Assembly scheduled for the first half of next year. “Korea is the only country in the world that tries to block tax evasion by means of a foreign exchange transactions act,” the government explained, adding, “From now on, however, we will tackle the problem by means of closer monitoring while improving the convenience of bona fide investors.”