Summary of Overseas Financial Account Reporting System

1.  Purpose of the System Introduction

◦ The Overseas Financial Account reporting system has been introduced in 2011, for the purpose of preventing the overseas tax evasion and enhancing the equity on taxation. 

- already been implemented in U.S., England and France, etc.

- specific information on the objects & process for reporting is delegated to the enforcement ordinance

2.  Contents of the Revised (reporting in 2016 on the holding accounts in 2015)

◦ Residents who hold an overseas financial accounts exceeding amount of the standard level.  Domestic corporations are required to report by June 30 next year (the fist reporting in June 2011 on the holding accounts in 2011)

-  No report (under report) amount exceeding KRW5.0 billion: an administrative fine of 20% (10% in  2014) to be imposed (Article 35 of Adjustment of International Taxes Act)

-  Imposing rate increase of fine for No report (under report): 10~20% (4~10% in 2014)

-  Insurance products with the nature of expense are excluded (extinctive insurance product accounts with net premium only for the risk which is of non-saving purpose)

-  Domestic corporation directly or indirectly owns 100% of the shares for foreign corporation, the overseas financial account under the name of the foreign corporation is required to be reported   

-  The reporting is not required when the owner of the relevant overseas financial account is a trust business entity of money trusts, business star-up investment cooperative or Korea Venture Fund.

-  The requisition of exemption from the reporting obligation of Korean national residing abroad is strengthened (from the report in 2017 for the holding accounts in 2016)

The total period of having a residence in the Republic of Korea from two years before the end of the relevant year subject to report is not more than one year→not more than 183 days.

3. Objects for Reporting

◦ Reporting is required when the aggregate balance of overseas financial account exceeds KRW one billion for any last day of a month of the relevant year

◦ Objects of the overseas financial institutions:  financial institutions under the 「Act on Real Name Financial Transactions」.

◦ Objects of the overseas financial accounts:  account opened in connection with banking service (cash account), account opened for transaction of securities under the 「Financial Investment Services and Capital Markets Act」

◦ When the nominal holder and actual owner of the overseas financial account are different, both of them has reporting obligation, and when it is of the joint checking account, each of respective person has reporting obligation.  But the reporting obligation is exempted when a person related to overseas financial accounts (actual owner, each of respective persons under a joint name, etc.) provide the other person under a joint name with information on his/her overseas financial account, and the tax authorities could verify the holding status of the overseas financial account of a person accordingly.     

◦ Reporting obligation for financial company under the Act on Real Name Financial Transactions is exempted as management and supervising on those is available separately.

◦ In case of a financial holding company, etc. which is not financial company under the Act on Real Name Financial Transactions, the exemption of reporting obligation is required 

4. Reporting related Rules

◦ Persons who has obligation to report the overseas financial account:  Residents and Domestic Corporations as at the last day of the year. 

◦ Methods for computing the balance of overseas financial account:

    - Sum the balance of the owned accounts converted into KRW as of the last day of each month (balance and foreign exchange rate as at the closing hour of the day)

    - Assets of the overseas financial accounts includes all accounts, i.e., accounts for banking services, accounts opened for transaction of securities, insurance products held throughout the relevant year.

◦ The reporting should be filed based on the balance which is of the highest value out of all balances as of the last day of each month of overseas financial accounts during the relevant year.  The account with balance KRW 0 or under is not required to be reported.  The financial liability balance is not required to be deducted.

◦ Persons who has obligation to report should submit the “Report of Foreign Bank and Financial Accounts” in June of the coming year.

    - The “Report of Foreign Bank and Financial Accounts” form is to be decided by the enforcement regulation

◦ The definition of concept for actual owner:  person who actually manages the relevant account

    - excluding case where the investment made by Collective Investment Scheme

◦ The relevant parties (actual owner, each of respective persons under a joint name, etc.) are deemed to have the whole balance of the relevant accounts respectively (regardless of the share ratio).

◦ The relevant party has liability to provide overseas financial account information of the other party


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