[Korean Law Insights] Loan Remittance to Korea and Foreign Exchange Reporting

[Published on August 1, 2023 edition of the "Korean Law Insights" column in the Korea Daily’s Economic Expert Section]

• It is advisable to complete the foreign exchange report before remittance

• If omitted, gift tax may apply, and restrictions may arise when remitting repayment funds

When remitting money from the U.S. to Korea, one of the most common reasons is monetary lending. This discussion focuses on the necessary foreign exchange reporting requirements. This applies when a Korean-American lends money to relatives or friends in Korea and sends the funds through a bank from the U.S. to Korea.

When remitting money from the U.S. to Korea for a loan, a monetary loan contract report is required. This report must be filed not in the U.S., but with the bank in Korea that will receive the loan funds. In other words, the borrower in Korea must visit the receiving bank in advance, consult with a bank representative, and complete the required reporting process before receiving the funds.

To complete this reporting, a monetary loan agreement is required. Many people are unaware of this requirement and end up rushing to draft the contract. In addition to the agreement, identification documents of the involved parties are necessary. It is important not to overlook the need for the U.S. lender’s ID. If the lender is a corporation, obtaining the required documents in advance is essential. Ultimately, the remitted loan funds from the U.S. can only be deposited into the Korean borrower's account after the reporting process is completed. Therefore, it is advisable to complete the reporting before initiating the remittance from the U.S. to Korea.

Additionally, even if the loan funds are remitted to a Korean account without completing the required reporting, issues may arise later when repaying the loan—specifically when sending the repayment from Korea to the U.S. As of July 4, Korean residents who designate a foreign exchange bank can remit up to $100,000 per year overseas without supporting documents. Therefore, if the loan amount is $100,000 or less, repayment can generally be sent back to the U.S. without additional documentation, aside from potential gift tax considerations. However, if the loan amount exceeds $100,000 or if prior overseas remittance history requires the submission of supporting documents for repayment to the U.S., the monetary loan agreement will inevitably need to be provided. This could expose the fact that the required reporting was not completed when the loan was initially sent to Korea. If the omission is discovered, penalties such as prosecutor notification, fines, or transaction restrictions may be imposed, depending on the amount and frequency of violations. On the other hand, if the reporting was properly completed, there is no need for additional foreign exchange reporting when remitting repayment from Korea to the U.S.

Monetary loans between the U.S. and Korea involve various considerations, and it is crucial to account for not only the time required for the remittance itself but also the time needed to prepare and process the foreign exchange report in Korea. Proper planning is essential to ensure that the loan transaction occurs at the desired time for both parties. For significant loan transactions, it is highly recommended to consult with a professional in advance and proceed with the entire process under their guidance to ensure compliance and avoid potential issues.

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Jin Hee Lee/K-Law Consulting Korean Attorney

[Reference link in original Korean] 

https://news.koreadaily.com/2023/08/01/economy/economygeneral/20230801234643381.html