A resident or domestic corporation holding overseas financial accounts whose aggregate balance exceeded KRW 500m on any month-end of the year must report between 1 and 30 June of the following year (Act on Adjustment of International Taxes, Art. 53(1); Enforcement Decree, Art. 92). Foreign residents under the proviso to Income Tax Act Art. 3(1), overseas Koreans with 182 days or less of residence in Korea and others are exempt under Art. 54.
The duty turns on “resident or domestic corporation” and KRW 500m
Article 53(1) of the Act on Adjustment of International Taxes makes a reporting obligor of any resident or domestic corporation holding overseas financial accounts whose balance exceeded the amount set by Presidential Decree on any month-end of the year. Article 92 of the Enforcement Decree sets that amount at KRW 500 million. Three points are easily missed. First, where there are several accounts, the balances are added together; no single account need reach KRW 500m if accounts spread across countries and institutions do so in total. Second, the test is not the year-end balance or an annual average but “any one” month-end; a large balance sitting in the accounts on a single month-end, even if moved out days later, is measured on that date. Third, the reporting window is 1 to 30 June of the following year, and the report goes to the district tax office with jurisdiction over the taxpayer. Because it falls outside the usual filing calendar, it needs its own diary entry. How balances are computed and how the beneficial owner is identified are delegated to the Decree, so the actual calculation follows the Decree in force for the year.
Residency is judged on the last day of the year
Article 92 of the Enforcement Decree provides that, for this reporting duty, resident and domestic-corporation status is determined as at the last day of the reporting year. The starting point is therefore whether you are a resident on 31 December. Someone who spent much of the year abroad but is a Korean resident at year-end must consider the duty; conversely, someone who left during the year and is a non-resident at year-end may fall outside it for that year. Residency itself is decided separately under the domicile and residence tests of the Income Tax Act, not by nationality or the name of a visa status. A foreign national whose life is centred in Korea can be a resident, and a Korean national whose life is centred abroad can be a non-resident. Once you are a resident, the main text of Income Tax Act Article 3(1) taxes in principle all income, so account reporting and income tax on foreign interest and dividends are best reviewed together. Reporting an account and reporting the income it produces are separate duties; meeting one does not satisfy the other.
Exemptions for foreign residents and overseas Koreans
Article 54 lists cases in which a reporting obligor is nonetheless exempt. For foreign nationals the key one is the foreign resident under the proviso to Income Tax Act Article 3(1): a foreign resident whose total period of domicile or residence in Korea in the ten years before the end of the tax year is five years or less. Such a person is taxed on foreign-source income only to the extent it is paid in Korea or remitted to Korea, and is exempt from account reporting while within that band. Once time in Korea builds up past five years out of ten, that ground falls away, so it pays to work out in advance, from the year of arrival and immigration records, the year in which the duty begins. An overseas Korean is exempt where total residence in Korea in the year before the end of the reporting year is 182 days or less, counted by the method in the Decree. Persons recognised as residents of the other contracting state under a tax treaty, financial institutions, the State, local governments and public institutions, and certain staff of international bodies designated by Decree are also exempt. Relying on treaty residence in practice requires documents to support it.
Nominee and joint accounts, and the fine for not reporting
Article 53 also addresses accounts whose name and real ownership differ. Where the named holder and the beneficial owner are different, as with an account not held in the real name, both are treated as holding it; for a joint account, each joint holder is treated as holding it. An overseas account held jointly by a married couple, or one opened in a relative’s name but managed by you, may fall within this. Where a joint holder’s own information becomes available through another joint holder’s report, or other conditions set by Decree are met, Article 54 may exempt that holder, so joint holders should agree in advance who reports and how. Failing to report carries a sanction. Article 90(1) imposes an administrative fine of up to 20 per cent of the total, across reportable accounts, of the unreported amounts or, for under-reporting, the difference between the amount reported and the amount that should have been reported. Because the base is the account balance, the fine can be substantial. The actual amount depends on the Decree and the facts of the case and needs to be confirmed individually.
A checklist for the first year in Korea
An overseas Korean returning after years abroad, or a foreign national who has newly arrived to work, should check the following in order in the first year. Start with whether you are a Korean resident as at 31 December. If so, look at the exemptions: for a foreign national, whether total domicile or residence in Korea over ten years is five years or less; for an overseas Korean, whether residence in Korea in the year before year-end totals 182 days or less; and whether you are recognised as a resident of the other state under a treaty. If no exemption applies, pull the month-end balance of every overseas account, add them up, and see whether the total exceeded KRW 500m on any month-end. Which accounts count as overseas financial accounts depends on the statutory definition, so rather than thinking only of deposit accounts, list every account held with a foreign financial institution and check each one. Foreign institutions often take time to produce month-end statements, so request them well before the June window. If you discover an account missed in an earlier year, it is sensible to take advice on how to deal with it in your particular case.