Minimizing restrictions on capital transactions

Author: | Published: 1 Dec 2005
Email a friend

Please enter a maximum of 5 recipients. Use ; to separate more than one email address.

Lee & Ko

Address

Seoul

Telephone

+82 2 772 4000

Fax

+82 2 772 4001

In 1999, Korea abolished the so-called positive list system and adopted the negative list system with respect to capital transactions, thereby regulating only such transactions as listed in the Foreign Exchange Transactions Law of Korea (FETL). Simultaneously, lawmakers passed a sunset provision requiring the advance approval of the Ministry of Finance and Economy (MOFE) or the Bank of Korea (BOK) for certain capital transactions (restricted transactions). That sunset provision will terminate on December 31 2005 and as a result, beginning on January 1 2006, MOFE (or BOK) approval requirements in respect of restricted transactions will automatically cease to be effective and be changed to reporting requirements.

Listed below are some of the restricted transactions that will be subject to the reporting requirements beginning in January 2006.

  1. A Korean resident borrower with a debt-to-equity ratio not less than the industry average will be able to borrow foreign currency-denominated loans or issue any foreign currency-denominated bonds, with a maturity of less than one year from the drawdown or issuance date, subject to the prior filing of a report with MOFE.
  2. Subject to the prior filing of a report with MOFE, a Korean resident borrower will be able to borrow Korean won-denominated loans from a non-resident lender or issue Korean won-denominated bonds to a non-resident subscriber, maturing within one year from the drawdown or issuance date.
  3. A Korean resident guarantor that is one of the top 30 conglomerates will be able to provide a guarantee in an amount exceeding a certain threshold in relation to overseas financing by that guarantor's overseas subsidiary, subject to the prior filing of a report with MOFE.
  4. A Korean resident guarantor will be able to provide a guarantee in respect of obligations of a non-resident obligor owing to a non-resident creditor, subject to the prior filing of a report with BOK.
  5. A Korean resident lender will be able to make a loan to a non-resident borrower in excess of $10 million, subject to the prior filing of a report with BOK.

As a result of the termination of the sunset provisions of FETL, restricted transactions will be subject to mere reporting requirements and Korea plans to fully liberalize all types of foreign exchange transactions by 2010.