Population: 51 million

Wealth in domestic bank deposits: 1961 billion USD (December 2023)

Offshore expatriated wealth: 19 billion USD

Main offshore banking locations: N/A

Number of individual brokerage accounts: 39 million (2021)

Crypto adoption (% of population): 2 million (4 %)

TLDR

South Korea has pursued financial liberalization while retaining prudential safeguards, creating an open environment for investment. Regulations balance innovation and stability. Recent foreign exchange reforms increased limits for personal overseas transfers and corporate offshore borrowing. Distribution of foreign securities requires registration and sales through local intermediaries. Investor protections are calibrated based on sophistication – qualified professionals face fewer restrictions than retail investors. Cryptocurrency regulation allows innovation under anti-money laundering and investor protection rules. Upcoming legislation will further institutionalize crypto markets. Tax incentives promote R&D and FDI. South Korea’s skilled workforce, high technology penetration, robust infrastructure and pro-business policies make it an attractive investment destination. Prudent macroeconomic policies have supported stability despite global volatility.

Exchange controls

South Korea has significantly liberalized foreign exchange regulations over time, aligning with OECD benchmarks. Most transactions involving foreign exchange generally do not require approval or reporting under the Foreign Exchange Transaction Act (FETA), with a few exceptions. Advance reporting is required for most capital transactions, such as foreign currency loans obtained by a Korean resident or loans provided to overseas entities. Foreign currency deposits should also be reported in advance.

Recently, the finance ministry issued a notice for planned FETA revisions to facilitate foreign exchange procedures and ease regulations. Changes include reduced penalties for not reporting foreign direct investment transactions and overseas real estate acquisitions, as well as improved predictability for traders.

In a package of reforms, the financial authorities deregulated several foreign exchange rules. The limit for personal remittances without documentary evidence was increased substantially from $50,000 to $100,000 per year. The limit for corporate overseas borrowing without reporting was raised from $30 million to $50 million annually. Requirements for Korean firms to report overseas operations were reduced from occasional detailed reporting to just an annual summary.

Distribution rules for foreign investment products

The Financial Investment Services and Capital Markets Act governs foreign securities distribution in South Korea. The Act imposes some restrictions on foreign investment in certain sectors like telecommunications, air transportation and publishing. Under the Foreign Exchange Transactions Act, transactions between residents and non-residents must be reported to monitor flows. Financial institutions must verify information when opening accounts and report suspicious transactions.

For foreign securities, offshore funds must register with the Financial Supervisory Service (FSS) in advance and be marketed through licensed local distributors like banks and securities companies. Funds are subject to eligibility criteria that vary depending on whether they target professional investors or general investors.

Once registered, funds must comply with ongoing requirements including: filing sales reports to the FSS; informing investors about performance and net asset value; reporting registered information changes; and paying an annual registration tax. Funds registered under the Asia Region Funds Passport system can be offered in Korea through simplified registration but must still comply with Korean laws.

Qualified investors

The Financial Investment Services and Capital Markets Act defines professional investors based on expertise and risk capacity, like financial institutions and listed firms. Professionals are assumed to understand risks better than non-professionals like retail investors, so face fewer investment restrictions. Non-professionals receive heightened conduct, disclosure and suitability protections. Investor categorization aims to calibrate protections based on sophistication. Professionals can request treatment as non-professionals.

Cryptocurrency regulation

South Korea has taken a proactive approach to regulating cryptocurrencies, aiming to balance innovation and financial stability. Cryptocurrencies are legal and regulated as “digital assets” under anti-money laundering and securities laws enforced by the Financial Services Commission (FSC).

The regulations require real-name verified accounts at crypto exchanges, Know Your Customer checks, AML procedures, segregated customer asset storage, and other security measures. The upcoming Digital Asset Basic Act will provide a comprehensive crypto regulatory framework with two-tier regulations distinguishing digital assets as securities or non-securities.

Cryptocurrencies held for investment purposes may be subject to a 20% capital gains tax for individuals and 22% for corporations. If used as payment methods, they may be subject to a 10% value-added tax. South Korea plans to impose a 20% tax on crypto investment gains above $2,100 annually.

South Korea has taken deregulatory steps like legalizing security token offerings, which were previously prohibited. The government aims to further roll out cryptocurrency legislation in 2023 and institutionalize the crypto sector by 2024. Nearly twenty separate crypto-related policy proposals are being debated to strengthen investor protections in South Korean crypto markets.