In Summary
As outlined in our July 2023 client alert, the Korean Financial Supervisory Service (FSS) issued a notice on June 19, 2023, regarding the potential sanctions for domestic employees violating the Foreign Exchange Transaction Act by selling foreign-listed shares through an overseas broker or depositing proceeds in an overseas financial institution. To avoid sanctions, domestic employees are required to open an account with a Korean domestic broker, transfer foreign-listed shares to the account, sell the shares through the domestic broker, and deposit the proceeds into an account with the domestic broker.
Following the notice, it became common for Korean banks to reject funds wired from foreign brokerage accounts, as it was deemed as a violation of the Foreign Exchange Transaction Act. Therefore, Korean employees who wish to sell such shares must engage a Korean broker to transfer the shares, introducing complexity and impacting timing. However, on December 29, 2023, the Korean Financial Services Commission (FSC) issued an advance notice of legislative action that would allow domestic employees to sell shares without a Korean broker and deposit the proceeds into an overseas financial institution.
Until this legislative action takes effect, the domestic broker requirement remains in place, and Korean domestic employees must sell shares through a Korean broker and deposit proceeds into a domestic account. For more details, please refer to the client alert issued by Kim & Chang for an update on the new employer tax reporting obligations for stock-based compensation.