Closing a business in Korea, whether it’s a domestic corporation (including a LLC) or a foreign branch office, involves several legal and administrative steps. Below is an outline of the corporate dissolution and liquidation process in South Korea, highlighting key steps and requirements.
- Board Resolution:
The initial step in the dissolution process is for the company’s board of directors or shareholders to pass a resolution to close the business. This decision should be documented in meeting minutes.
- Appointment of Liquidator:
A liquidator is appointed to manage the winding-up process. The liquidator’s responsibilities include collecting and distributing the company’s assets, settling its liabilities, and completing the dissolution process.
- Corporate Tax Reporting at Different Stages:
Throughout the dissolution and liquidation process, the company must submit corporate tax reports at various stages, corresponding with specific phases of dissolution and liquidation. This reporting is separate from regular business operations. Key phases requiring corporate tax reporting include:
A. Dissolution Notice to Tax Authorities:
Initially, when the company begins the dissolution process, it must inform the tax authorities of its intention to dissolve. This notification should include details about the liquidator and the planned dissolution date.
B. Pre-Closure Tax Return:
Before finalizing the closure of the business, a pre-closure corporate tax return is necessary. This return should accurately reflect the company’s financial status up to the date of cessation.
Adhering to these specific corporate tax reporting requirements during dissolution and liquidation ensures compliance with tax regulations. Merely notifying the business closure is insufficient; proper corporate tax reporting at each phase is essential to meet legal obligations.
- Debt Settlement:
The company must settle all outstanding debts and obligations, including taxes, employee salaries, and contractual agreements.
- Asset Liquidation:
The company’s assets, including real estate and movable property, must be liquidated. The proceeds from asset sales are used to settle remaining debts and liabilities.
- Cancellation of Business Registration (Business Termination Report to Tax Office):
After settling all debts and liquidating assets, the company’s business registration is canceled. This step officially marks the end of the business entity.
- Employee Settlement:
If the company has employees, they must be notified of the dissolution and provided with their final paychecks, severance pay, and accrued benefits.
- Official Gazette Announcement:
The dissolution of the company is announced in the official government gazette to inform creditors and interested parties.
- Record Preservation:
The company is required to retain its corporate records and documents for a specified period, even after dissolution.
- Repatriation of Liquidation Proceeds:
Repatriating the liquidation proceeds to foreign shareholders can be complex due to strict foreign exchange regulations in South Korea. It’s essential to seek guidance from experts familiar with these regulations to ensure compliance. Key steps involved in sending liquidation funds to foreign shareholders include:
A. Required Documents:
Ensure all necessary documents are in order before initiating the fund transfer, including certificates, reports, and tax-related documents.
B. Visit to Head Office of the Transaction Bank:
Foreign shareholders or their representatives must visit the designated transaction bank’s head office in South Korea to initiate the fund transfer, bringing along all required documents.
C. Compliance with Foreign Exchange Regulations:
Comply with South Korea’s stringent foreign exchange regulations, with guidance from the transaction bank to ensure compliance.
D. Currency Exchange:
Funds can be transferred in Korean Won (KRW) or converted to another currency based on foreign shareholders’ preferences. Currency exchange services are available through banks, with the exchange rate determined at the time of the transaction.
E. Tax Implications:
Consider tax implications associated with fund repatriation in South Korea and foreign shareholders’ home countries. Consult tax professionals for guidance.
F. Documentation and Record-Keeping:
Properly document and retain records of the fund transfer process, including receipts, correspondence with the bank, and tax-related documentation.
Conclusion:
Repatriating liquidation proceeds to foreign shareholders in Korea requires adherence to strict foreign exchange regulations and proper documentation. Seek expert advice to navigate this process effectively and ensure compliance with legal and financial requirements. For more information, please contact siyoon@star-tax.kr.
Closing Business in Korea: Essential Steps and Requirements is a comprehensive guide that outlines the necessary procedures and requirements for terminating business operations in Korea.
