[Korean Law Insights] Amendments to Overseas Remittance Regulations and Related Tax Considerations

[Published on July 4, 2023 edition of the "Korean Law Insights" column in the Korea Daily’s Economic Expert Section]

• Only the overseas remittance limit for Korean residents has been expanded

• It is also important to be aware of related tax considerations

Recently, there has been a lot of news about the expansion of Korea’s overseas remittance limit (hereinafter referred to as the "remittance limit") from $50,000 to $100,000. The previous $50,000 limit was established in 1999 when the Foreign Exchange Transactions Act was enacted, and it has now been increased to $100,000 after 24 years. This amendment, including the revised remittance limit, took effect on July 4 (Korea Standard Time). However, there seems to be some misunderstanding regarding the meaning of the remittance limit and who is affected by this amendment. It is important to clarify these aspects to avoid any confusion.

First, the overseas remittance limit refers to the amount that can be sent abroad annually without requiring supporting documents. This does not mean that remittances exceeding the limit are prohibited; rather, such transactions can still be processed if the necessary supporting documents are provided. Specifically, when sending more than $5,000 per transaction, individuals must designate a foreign exchange bank. Once a bank is designated, they can remit up to the annual remittance limit without submitting additional documentation. It is important to note that the term "annual" always refers to the calendar year ending on December 31. For example, if a person designates a foreign exchange bank and makes a remittance on July 1, 2023, the applicable remittance limit is not valid until June 30, 2024, but rather until December 31, 2023.

The recent amendment to the Foreign Exchange Transactions Regulations expands the overseas remittance limit, but it appears that this expansion only applies to Korean residents. The regulations distinguish between Korean residents, foreign residents, and non-residents, and the recent amendment specifically applies only to Korean residents by modifying Article 4-3, which governs overseas remittances without supporting documents. However, Article 4-4, which pertains to foreign residents and non-residents, remains unchanged. This means that if a person is a U.S. citizen, a permanent resident (green card holder), or a visa holder classified as a non-resident under Korean foreign exchange laws, they are still limited to an annual remittance of $50,000 without proof of funds.

Meanwhile, one of the biggest concerns for many Koreans residing in the U.S. regarding overseas remittances is tax implications. In general, for remittances exceeding $10,000 per year, the transaction is reported to the Korean National Tax Service (NTS) and for remittances to overseas students or residents abroad (including both remittances and currency exchanges), only amounts exceeding $100,000 per year are reported to the NTS. Although NTS reporting does not automatically trigger a tax audit, individuals should be aware that issues may arise depending on the total remitted amount, the frequency of transactions, and the stated purpose of the remittance.

As mentioned earlier, overseas remittances of $5,000 or less per transaction can be made without designating a foreign exchange bank, and they do not count toward the annual remittance limit. However, if a person frequently makes multiple remittances of $5,000 or less, it may raise suspicion of illegal fund transfers, especially if the transactions are not clearly related to trade activities. In practice, such cases may be subject to investigation, so individuals should be cautious.

Another important tax consideration is remitting funds from Korea to a third party’s account in the U.S. Sending money from your own account in Korea to your own account in the U.S. generally does not raise tax issues. However, sending money to someone else’s account in the U.S. could be subject to gift tax, depending on the amount and the relationship between the sender and the recipient. Since this issue requires a comprehensive review based on various factors, it is highly recommended to consult a professional in advance if necessary.

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Jin Hee Lee/K-Law Consulting Korean Attorney

[Reference link in original Korean] 

https://news.koreadaily.com/2023/07/04/economy/economygeneral/20230704180707772.html