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Liquidation procedures for foreign invested companies in Korea

31 Jan 2018

Overview

In order to liquidate a foreign invested company in Korea, liquidation procedures stipulated under the Commercial Law, Tax Laws and Foreign Exchange Transaction Regulations must be strictly followed. The liquidation procedures would normally take 3 to 4 months, provided that there are no hiccups during the course of receivable collection and realization of assets into cash. Below you will find a brief look at the liquidation procedures for foreign invested companies in Korea.

Major Liquidation procedures

(1) Shareholders’(or Members’) resolution for dissolution

To place a foreign-invested company into liquidation, a Shareholders’(or Members’) resolution for dissolution must be passed first and foremost. Once the resolution has been passed, the foreign-invested company is required to register the dissolution of the company with the relevant registry office having jurisdiction over the head office within 2 weeks (or 3 weeks for branch offices, if applicable).

(2) Appointment of a liquidator and notice to creditors

A foreign-invested company must appoint a liquidator after the resolution for dissolution has been passed. Following the appointment of the liquidator, the foreign-invested company is then required to register the appointment of the liquidator with the relevant registry office and complete the registration requirements for the appointment of the liquidator.

Within 2 months from the appointment, the liquidator is ordered to set a specific period that lasts 2 or more months (“Covered Period”). During such Covered Period, the liquidator issues public notices to the creditors about their claims against the foreign invested company and makes the creditors aware that if they fail to claim within the Covered Period, their claims against the company shall no longer be included in the liquidation. The liquidator issues the notices no less than twice in a newspaper designated under the articles of association of the foreign invested company. Meanwhile, any known creditors must be placed in priority, and even in case such creditors do not make any claims within the Covered Period, their claims shall not be removed from the liquidation.

(3) Filing of the closure of business

A foreign-invested company must report its closure of business no later than the actual date of the closure and return the company’s business registration certificate to its jurisdictional district tax office.

(4) Receivable collection and realization of assets into cash / Debt repayment

During the Covered Period, the liquidator must collect the receivables and liquidate the assets into cash. Once the Covered Period lapses, debts owed to the creditors who claimed against the foreign invested company and the known creditors must be repaid.

 (5) Tax compliance requirements for dissolution and liquidation

A foreign-invested company is required to fulfill following tax compliance requirements in regards to the dissolution and liquidation.

Category

Period

Deadline

Filing of VAT returns

From the beginning of the tax period in which the date of dissolution falls until the date of closure

Within 25 days from the end of the month in which the date of closure falls

Filing of Corporate Income Tax returns for each tax year

From the beginning of the tax year until the date of dissolution registration

Within 3 months from the end of the month to which the end of the tax year belongs.

From the day immediately following the date of dissolution registration until the date in which the liquidation value is finalized (*)

Filing of Corporate Income Tax on liquidation income

Corporate Income Tax is  imposed on liquidation income determined on the date in which the liquidation value is finalized

Within 3 months from the end of the month in which the liquidation value is finalized. .

(*) In case that the end of a tax year falls between the day immediately following the date of dissolution registration and the date in which the liquidation value is finalized, the foreign invested company is required to file tax returns for each of the following periods: (i) Period from the day immediately following the date of dissolution registration until the end of the tax year; and (2) the period from the beginning of the following tax year until the date in which the liquidation value is finalized.

(6) The completion of liquidation and cancellation of the foreign invested company registration

As soon as the foreign invested company fulfills its financial obligations and arrive at the final liquidation value, the liquidator is required to seek approval on the Statement of the Settlement of Accounts by submitting it to the Shareholders’(or Members’) meeting. Once the approval is obtained, the foreign invested company must register the completion of liquidation within 2 weeks from the date of approval with the relevant registry office.

Once the liquidator proves that the liquidation is complete and all tax liabilities have been settled by submitting audit reports and tax clearance certificates to a designated foreign exchange bank, the foreign invested company can distribute proceeds from remaining assets to the foreign investor. As a last step, the foreign invested company cancels its foreign invested company registration with the designated foreign exchange bank and returns the Certificate of Registration of a Foreign Invested Company, and completes all requisite liquidation procedures in Korea.

Conclusion

In order to be able to remit the liquidation proceeds after the liquidation of the foreign invested company, all liquidation procedures must be performed within the deadline. Therefore, should the foreign invested company decide to be liquidated in Korea, it is absolutely necessary to seek a legal and tax expert’s advice on the detailed liquidation procedures and other matters pertaining to the liquidation procedures.


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