South Korea Treasury Management Profile 2018 - Together we thrive - HSBC Group
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2 HSBC Treasury Management Profile 2018 | South Korea HSBC Treasury Management Profile 2018 | South Korea 3 Contents Introduction and Purpose Introduction and Purpose 3 South Korea This is one of a series of Treasury Management Profiles designed for finance and treasury professionals worldwide. By providing a Legal and Regulatory 6 snapshot of banking, payments and cash management in selected locations, these profiles can help treasury managers to make informed decisions, manage risks effectively and take advantage of new opportunities. However, this information is not intended to Taxation7 be comprehensive and does not constitute financial, legal, tax or other professional advice. Accordingly you should not act upon the information contained in this document without obtaining your own independent professional advice. The materials contained in this Banking13 document were assembled in May 2017 (unless otherwise dated) and were based on the law enforceable and information available Payment Instruments 14 at that time. Payment Systems 17 Facts and Figures Cash Management 21 Capital/Other major cities: Seoul/Incheon, Pusan, Ulsan Business hours: 08:30–17:30 (Mon–Fri) Electronic Banking 22 Area: 98,720km2 Banking hours: 09:00–16:00 (Mon–Fri) Trade Finance 24 Population: 50.92m Stock exchange: Korea Exchange (KRX) Language: Korean Leading share index: KRX 100, KOSDAQ Index, Useful Websites 26 KOSPI Index Currency: South Korean won (KRW) Country telephone code: 82 Sectoral distribution Agriculture 2.3%, of GDP (% of GDP): Industry 37.6%, Weekend: Saturday and Sunday Source: https://www.cia.gov/library/ publications/resources/the-world- Services 60.2% National holidays: 2018 — 1 Jan, 15–17 Feb, 1 Mar, factbook/index.html. (2016 estimate) Source: www.goodbusinessday.com. 1, 7, 22 May, 6 Jun, 15 Aug, 23–26 Sep, 3, 9 Oct, 25 Dec Government Head of state Legislature Moon Jae-in, president since 10 May 2017. Representative democratic republic with a unicameral National Assembly (Kukhoe). ®® The president is directly elected to serve one five‑year term. ®® National Assembly: 300 members are elected to serve four- Political leader year terms. Lee Nak-Yon prime minister since 31 May 2017. Legislative elections were last held in April 2016.
4 HSBC Treasury Management Profile 2018 | South Korea HSBC Treasury Management Profile 2018 | South Korea 5 Country credit rating Fitch Ratings rates South Korea for issuer default as: Term Issuer Default Rating Short F1 + Long AA – Long-term rating outlook Stable Source: www.fitchratings.com, October 2017. Exchange rate & Interest rate (%) Consumer inflation & GDP volume growth (%) Economy South Korea South Korea 2017 2010 2011 2012 2013 2014 2015 2016 1,200 1,200 4 4 Q1 Q2 Q3 Exchange rate* (KRW/USD)** 1,156.1 1,108.3 1,126.5 1,094.9 1,053.0 1,131.2 1,160.4 1,153.2 1,130.0 1,132.2 900 900 3 3 Interest rate (MMR) (%) ** 2.16 3.09 3.08 2.59 2.34 1.65 1.34 1.23 NA NA 600 600 Unemployment (%)** 3.7 3.4 3.2 3.1 3.5 3.6 3.7 4.3 3.9 NA 2 2 Consumer inflation*** (%) + 3.0 + 4.0 + 2.2 + 1.3 + 1.3 + 0.7 + 1.0 + 2.1 + 1.9 + 2.3 300 300 1 1 GDP volume growth *** (%) + 6.5 + 3.7 + 2.3 + 2.9 + 3.3 + 2.8 +2.9 +3.0 + 2.7 NA 0 0 GDP (KRW tr) 1,265 1,333 1,377 1,429 1,486 1,559 1,637 – – – 0 0 2012 2013 2014 2015 2016 2012 2013 2014 2015 2016 GDP (USD bn) 1,094 1,202 1,223 1,306 1,411 1,378 1,411 – – – Exchange rate (KRW/USD) Consumer inflation % GDP per capita (USD) 22,590 24,676 24,648 26,190 28,186 27,398 27,781 – – – Interest rate (Local Currency MMR) GDP volume growth % BoP (goods/services/income) as % GDP 3.1 1.9 4.6 6.5 6.3 8.1 7.4 – – – * Official rate. ** Period average. *** Year on year. Sources: IMF, International Financial Statistics, November 2017 and 2017 Yearbook. Sources: IMF, International Financial Statistics, November 2017 and 2017 Yearbook.
6 HSBC Treasury Management Profile 2018 | South Korea HSBC Treasury Management Profile 2018 | South Korea 7 Legal and Taxation 1 Regulatory Central bank Reporting Resident/non-resident Corporate income tax rates are as follows: The Bank of Korea (BoK) is an autonomous institution operating in Depending upon the details of cross-border money transfers and/ A company that has its headquarters, main office or a place accordance with the Bank of Korea Act and its amendments. or transactions between residents and non-residents, a report to of effective management in South Korea is considered to be a taxable entity in Korea for Korea-source income. Tax rate a foreign exchange bank, the BoK, or the Ministry of Strategy and Tax base Bank supervision (including local surtax) Finance (MoSF), may be required. The Financial Services Commission (FSC) and its executive arm, Tax authority Above KRW 20 billion 22% (24.2%) the Financial Supervisory Service (FSS), supervise the banking In principle, all payments and receipts between residents and ®® National Tax Service (NTS). sector in South Korea. In accordance with the Bank of Korea Act, non-residents should be made through foreign exchange banks KRW 200 million – 20% (22%) the BoK also carries out some supervisory functions. in South Korea. Foreign exchange banks include all domestic and Tax year/filing KRW 20 billion foreign bank branches operating in the country. The business year should be specified in the company’s articles of Below KRW 200 million 10% (11%) Resident/non-resident status incorporation or in the bylaws, and should not exceed one year. A company, which is incorporated in South Korea, is considered Exchange controls Most companies use the calendar year. as resident while its overseas branch is categorised as non- The Korean won (KRW) is South Korea’s official currency. According to tax reform proposals, a new 25% (27.5% including resident. A company, which is incorporated out of South Korea, Korea operates a self-assessment system. If the business year local surtax) corporate income rate for taxable income in excess is considered as non-resident, while its domestic branch in South Foreign exchange controls are administered by the BoK is longer than six months, advance tax must be paid for the first of KRW 200 billion will become effective on or after January Korea is categorized as resident. and MoSF. Excluding the KRW, settlements with other countries six-month period of the business year, based on 50% of the 1 2018. A local surtax of 10% of the corporate income tax can be completed in any convertible currency. previous year’s tax liability or the actual financial performance for due applies. Bank accounts the six-month period. Filing and payment of advance tax must be Resident Foreign exchange banks must be notified of all foreign currency- made within two months after the first six-month period. Corporate taxpayers are subject to a minimum tax that is imposed Foreign currency accounts can be held by residents both denominated commercial and financial credits (i.e. foreign at a rate of 10% on taxable income up to KRW 10 billion, 12% domestically and abroad. Residents may need to report to the currency loan) to residents from non-residents up to USD 30 Companies must file a year-end income tax return within three on taxable income above KRW 10 billion to KRW 100 billion, and designated FX bank or the Governor of BoK depending on the million, subject to the FETR. The MoSF must be notified of credits months (four months for companies filing a consolidated tax 16% on taxable income over KRW 100 billion (7% for small and details of a foreign currency account to be opened abroad. in excess of USD 30 million. return) after the end of a fiscal year and attach the balance medium-sized enterprises (SMEs)). Residents are not permitted to open Korean Won currency (KRW) sheet, income statement, statement of appropriation of retained accounts abroad in principle. KRW funds deposited in Resident’s The BoK must be informed of all KRW-denominated commercial earnings (or statement of disposition of deficit) and other relevant Losses may be carried forward for up to ten years. SMEs KRW accounts in Korea are not convertible into foreign currency credits to non-residents from residents in excess of KRW 1 billion. documents. A branch of a foreign corporation may be granted an may be allowed to carry losses back for one year. Effective without justifiable reason. It must also be informed of KRW-denominated loans and credits extension of time to file its tax return in certain cases. Domestic from 1 January 2016, a deduction limitation on the tax loss to non-residents from residents in excess of KRW 30 billion. companies subject to mandatory external audit also may have a carryforward is introduced. Under the new deduction limitation Non-resident one-month extension for filing in certain cases. Under the Foreign Investment Promotion Act, restrictions may rule, companies other than SMEs may utilise their tax loss Non-residents are permitted to open an account with a domestic carryforwards to set off only 80% of the taxable income for a bank in both foreign or KRW currency. Non-residents can hold apply to non-resident investment in certain sectors, including rice, A consolidated return system is available for a parent company meat, tobacco and nuclear power generation, and in any public fiscal year. According to proposed tax revisions, the deduction (i) free won accounts for current transactions and reinsurance and its 100% directly or indirectly owned domestic subsidiaries. sector utilities involved in privatisation. limit will be reduced to 60% and 50% on or after 1 January 2018 contracts and (ii) exclusive KRW accounts for securities and 2019 respectively. investment. KRW funds as deposited in Non-resident’s free won Corporate taxation accounts are freely convertible into foreign currency. A domestic company is taxable on its worldwide income. A foreign company with a permanent establishment (PE) in South Interest-bearing current accounts are not available. Overdraft Korea is required to file its corporate tax return disclosing the facilities are available to residents and non-residents subject to income attributable to the PE. A foreign company with a PE in Foreign Exchange Transaction Regulations (FETR). South Korea is taxable on its Korean‑sourced income for Korean corporate income tax purposes. 1. All tax information supplied by Deloitte Touche Tohmatsu (www.deloitte.com) and Deloitte Highlight, 2017.
8 HSBC Treasury Management Profile 2018 | South Korea HSBC Treasury Management Profile 2018 | South Korea 9 Various types of tax credits and exemptions are available, such as ®® The foreign individual (and any related parties) owns less Withholding tax (subject to tax treaties) an investment tax credit, R&D tax credit, tax exemption for high- than 25% of the share capital of the Korean company during tech foreign-invested companies, etc., provided the requirements the year in which the transfer occurs, and did so during the Payments to: Interest Dividends Royalties Other income Branch remittances of the Tax Incentive Limitation Law are met. prior five-year period. Under proposed tax amendments, the ownership threshold will be reduced from less than 25% to Resident companies 15.4%/27.5% None None None NA Advance tax ruling availability less than 5%. The current rule will continue to apply until 31 A taxpayer can submit a request for a written ruling to the NTS or December 2018 for the transfer of listed Korean company Non-resident companies 15.4%/22% 22% 22% 22% 5–15% the Ministry of Strategy and Finance (MoSF) to resolve or clarify shares acquired before 1 January 2018. certain tax issues before entering into transactions. Obtaining a ruling can take several months. Such rulings are public Withholding tax (subject to tax treaties) Tax treaties/tax information exchange agreements Proposed tax reform introduces a New Limitation on Interest information. Although third parties can refer to rulings, they are Interest on a regular loan paid to a non-resident company or (TIEAs) Expense Deductions for Multinational Companies effective from only binding upon the party requesting them. The tax authorities an individual is subject to a 22% withholding tax (including the The South Korean government has entered into tax treaties 1 January 2019. Non-deductible interest is the greater of: may issue a private tax ruling in response to a taxpayer’s enquiry local surtax). Interest on bonds is subject to a 15.4% withholding with more than 80 countries. When domestic tax law as to the interpretation/application of the tax law. An advance tax (including the local surtax). The rate may be reduced under conflicts with a tax treaty, the tax treaty overrides domestic ®® The amount of interest deduction denied under the thin ruling system also is in place. a tax treaty, although withholding at the domestic, rather than law. capitalization rules; and treaty, rate may be required for certain payments to jurisdictions ®® Net interest expense that exceeds 30% of adjusted taxable Capital gains tax regarded as tax havens. Disallowed interest may be treated as a South Korea has exchange of information relationships with income. Adjusted taxable income is taxable income for Domestic companies report capital gains, together with other dividend (see Thin capitalisation section). 99 jurisdictions through 89 double tax treaties and ten TIEAs. the year plus depreciation on fixed assets and net interest profits earned by the company, on their corporate tax return and there is no preferential rate for capital gains. expense. The taxation of a gain from trading in derivative products or Thin capitalisation sophisticated financial products is still in the development stage If domestic or foreign companies borrow from a foreign An FCS is a head office or a foreign entity owning, directly or Korean-sourced capital gains derived by a non-resident are taxed in South Korea, and there are currently no definite rules. Certain controlling shareholder (FCS), or an FCS or head office indirectly, 50% or more of the shares of a Korean company or a at the lesser of 11% of the sales proceeds received or 22% of the gains are treated as interest and other gains are treated as other guarantees borrowings from third parties, and such foreign entity that substantially controls the Korean company. gains realised. Foreign companies that derive capital gains from income. Withholding tax rates would differ, depending upon the borrowing exceeds 200% (600% for financial institutions) the sale of real estate, and companies with large holdings of real character of the income derived. of its net equity or paid-capital, whichever is greater, then When a company borrows funds that are then used to lend to estate, are required to file a tax return and are subject to tax at the interest expense on the debt exceeding 200% (600% for related parties, a portion of the interest expense incurred by the regular corporate tax rate, unless there is a separate article in Income from transactions in financial investment services and financial institutions) of the FCS’s share of the borrower’s the company, equivalent to the ratio of the loans made to the a tax treaty. capital markets derived by a foreign company with no permanent net equity or paid-in capital is not a deductible expense, for related party over the company’s total borrowings, would not be establishment in South Korea is not treated as Korean-sourced Korean corporate income tax purposes. Furthermore, any deductible for income tax purposes. This is because the loan to The sale of listed shares by a foreign individual shareholder is income subject to Korean withholding tax. disallowed interest is treated as a dividend to the FCS and is a related party would be considered a non-business asset under exempt from capital gains tax, regardless of whether a tax treaty applies, when the following requirements are satisfied: subject to withholding tax. the corporate income tax law when the lender is not engaged in a In general, there is no branch remittance tax. However, a branch financing business. tax, ranging from 5% to 15% of after-tax profits less deemed ®® Listed shares are transferred through the Korea Stock reinvested capital, may be levied if a tax treaty between South Exchange, or KOSDAQ; Korea and the country in which the branch’s head office is ®® The foreign individual has no permanent establishment in resident allows South Korea to impose the branch tax. South Korea; and
10 HSBC Treasury Management Profile 2018 | South Korea HSBC Treasury Management Profile 2018 | South Korea 11 Under the commercial law and foreign currency transaction regulations, there is a provision to enable cash pooling and cash concentration among affiliates worldwide. Transfer pricing Application for reduced tax rate Cash pooling Payroll and social security taxes Transactions with overseas related parties must be made on Foreign companies or non-residents who become substantial South Korea has no specific tax rules for cash pooling There is no payroll tax payable by employees. Employers are arm’s-length terms. The following transfer pricing-related beneficiary owners of domestic-sourced income, such as arrangements. However, under the commercial law and foreign required to withhold income taxes, pension contributions and information must be disclosed when filing a corporate income tax interest, dividends etc., that is subject to withholding taxes in currency transaction regulations, there is a provision to enable insurance contributions from their employees’ payroll on a return: Korea, should submit an Application for Reduced Tax Rate to the cash pooling and cash concentration among affiliates worldwide. monthly basis (at rates ranging from 6.6% to 44% (increased to withholding agent before the date of payment in order to enjoy 46% effective on or after 1 January 2018, according to proposed ®® A report on the selected transfer pricing method and the the reduced tax rate in tax treaties between Korea and other Real estate taxes tax changes), and to submit them to the appropriate government reason for its selection; countries. A company that owns land, buildings, ships and aircraft at a offices by the tenth day of the month following the month in ®® A schedule of the taxpayer’s international transactions with certain assessment date is subject to property tax on such assets. which salaries are paid. foreign related parties; and Acquisition tax The tax rates range from 0.24% to 0.6% (including the education ®® A summary income statement for foreign related parties. When a taxpayer acquires certain assets, such as real estate, a surtax), depending on the type of property. A company that owns An employer must make four types of social security vehicle or luxury assets (including golf club membership) set out real estate, such as land or residential buildings, is subject to the contributions – National pension (4.5% of monthly salary), Effective from 1 January 2016, domestic companies and PEs of a in the Local Tax Law, generally a 4.6% acquisition tax (including comprehensive real estate tax in addition to the local property tax. national health insurance (3.06%), (un)employment insurance foreign company that have annual sales of more than local surtax) is imposed on the purchase price of the assets (See Stamp duty section.) (0.65%) and industrial injury compensation insurance (with KRW 100 billion, and a transaction volume with foreign-related acquired. employees also contributing to the first three). Sales taxes/VAT (incl. financial services) parties of more than KRW 50 billion per year, are required When a shareholder acquires over 50% of the shares in a VAT is levied on all taxable goods and services and on all taxable to submit additional transfer pricing documentation (i.e. a domestic company, the shareholder is deemed to have acquired goods imported into South Korea. The standard rate is 10%, comprehensive report on cross-border transactions, including the underlying assets, as mentioned above, of that company; but VAT is zero rated for certain supplies or services, including a master file, local file, and country-by-country report), which therefore the acquiring shareholder is subject to deemed the export of goods, services provided outside Korea, and provides organisation/management information, cross-border acquisition tax on the book value of such assets. international navigation services involving ships and aircraft. transaction information, various business/intangible asset/ financial/tax information, etc. Both unilateral and bilateral Assets located in the Seoul metropolitan area are subject to an Public transportation services, certain food products, advance pricing agreements are available. increased tax burden equal to two to four times the acquisition publications, medical services and services provided by financial tax. institutions, such as banking, insurance and securities listed in Controlled foreign companies the VAT law, are exempt from VAT. When 10% or more of the issued shares in a foreign company are Registration tax owned by a Korean resident and the average effective income tax A company is subject to capital registration tax at 0.48% VAT applies to foreign suppliers that provide electronic services rate of the foreign company for the most recent three consecutive (including local surtax) on the amount of capital contributed. (e.g. games, audio or video files, software, etc. activated through years is 15% or less, the Korean resident is deemed to have The tax rate triples when the company is located in the Seoul mobile communication devices or computers) to persons (other received a dividend of an amount equal to ‘deemed distributable metropolitan area to 1.44%. The registration tax for certain than tax-registered businesses) in Korea using information retained earnings’ multiplied by the shareholdings ratio, even acquired assets has been combined with acquisition tax. communication networks. though there has been no actual distribution of such retained earnings to the Korean resident. Securities transaction tax All domestic businesses supplying taxable goods or services Securities transaction tax is imposed on the seller at a rate of must register with the tax authorities for VAT purposes. Foreign Stamp duty 0.5% for unlisted shares, and 0.3% for listed shares, of the suppliers that provide electronic services via information Stamp duty is imposed when a document verifying that property transfer price upon the sale of securities. communication networks should access the National Tax Service rights are found, transferred or changed is newly made, but the (NTS) website and apply for simplified registration of the business tax is not significant. with the NTS.
12 HSBC Treasury Management Profile 2018 | South Korea HSBC Treasury Management Profile 2018 | South Korea 13 Banking Overview Digitalisation, and the efficiencies and financial benefits that There are 18 banks operating in South Korea: six national technology can bring to the banking sector, is being embraced commercial banks, six regional commercial banks and five by South Korea’s banks and actively encouraged by the central specialist banks. There are also 42 branches of foreign banks and bank, which recognises that non-financial technology companies 79 savings banks. will increasingly shape the country’s financial sector. In 2017, for example, South Korea’s SK Telecom and Hana Financial Group National commercial banks have extensive branch networks will launch a mobile financial services platform offering a variety throughout the country and provide deposit taking, lending and of mobile financial services – such as payments, remittance and payment and settlement services. Regional commercial banks asset management – through a single mobile app. typically provide services to small and medium-sized companies in the region in which they are based. According to recent figures from the BoK, the number of digital banking users in South Korea totaled 54.2 million in Q1 2017, The five specialist banks – Korea Development Bank, Export- up from 53.7 million the previous quarter. Import Bank of Korea, Industrial Bank of Korea, the National Agricultural Cooperative Federation and the National Federation South Korea’s government actively promotes South Korea as for Fisheries Cooperatives – provide financing to those industries a leading Asian financial services hub, upgrading financial that cannot be serviced by commercial banks. infrastructure, undertaking deregulation and enacting liberal reforms. As part of its strategic reform of the financial sector, South Korea’s government holds a controlling stake in a number the government has encouraged strategic global banking of domestic financial institutions, most notably Industrial Bank of relationships. Korea (50.4%) and Korea Development Bank (100%). In February 2017, the government completed its privatisation of Woori Bank; in 2015, it announced it was looking to sell 51% of the bank Major banks (owned by state-run Korea Deposit Insurance Corporation) to multiple buyers. On completion, it will have sold 29.7% of its Total assets (USD billions) Bank shares. 30 June 2017 Foreign banks play an active role in the country’s financial sector KB Financial Group 368,623 and offer the widest range of cash management services. Shinhan Financial Group 361,344 In a bid to spur growth in its banking sector, South Korea is NongHyup Financial Group 333,137 allowing non-financial firms to open banks. In November 2015, Hana Financial Group 304,716 the FSC gave preliminary approval to two consortia backed by Kakao Corp (which operates Kakao Pay, a mobile payments Korea Development Bank 226,155* service), and an affiliate of China’s Alibaba Group, to set up the * Data as at 31 December 2016. country’s first online-only banks. Kbank launched operations in April 2017; Kakaobank went live in July 2017. Source: www.accuity.com, January 2017.
14 HSBC Treasury Management Profile 2018 | South Korea HSBC Treasury Management Profile 2018 | South Korea 15 Payment Instruments Payment statistics Samsung Pay is the Card payments Payment cards, particularly credit cards, are a popular method Millions of transactions % change Traffic (KRW billions) % change of payment in South Korea. Credit cards accounted for 44% of 2015 2016 2016/2015 2015 2016 2016/2015 country’s leading the volume of all cashless payments in 2016, but just 0.6% of the value. Debit card volumes and value were negligible. mobile payment app. Cheques and bills 254.4 200.7 -21.1 5,681,764.4 5,336,238.0 -6.1 There were 95.6 million credit cards in circulation at the end Debit card payments 0.19 0.13 -31.6 7.6 5.2 -31.6 of 2016 and 154.1 million debit cards. There are 35 domestic In its first year of Credit card payments 9,818.4 10,663.7 8.6 614,241.2 675,762.2 10.0 card issuing companies in South Korea, in addition to Visa and MasterCard. All cards issued are EMV-compliant. Cheque card payments 5,400.8 6,392.9 18.4 134,213.7 155,055.2 15.5 IC card payments 2.2 4.0 81.8 199.6 359.3 65.0 operation, transaction Debit card use is restricted by the operating hours of the debit card system in South Korea (08:00 to 23:00). A more popular Direct debits 925.6 895.6 -3.2 89,307.2 90,239.5 1.0 choice for consumers is the cheque card, which can be used 24 Credit transfers* 4,015.5 4,245.2 5.7 85,450,880.3 92,362,693.3 8.1 volumes reached hours a day (26% of the value of all transactions in 2016, but just 0.2% of the value) and IC cards. USD 2 billion (25% of Debit transfers 1,709.1 1,771.5 3.7 179,801.2 187,551.7 4.3 South Korea does not have a dedicated interbank settlement E-money 5.3 3.2 -39.6 8.9 5.9 -33.7 system for credit card transactions. Each card issuer can choose this is online). Total 22,131.5 24,176.9 9.2 95,150,424.80 98,807,880.3 7.2 a different method of settlement. For bank-issued cards, the BC Card Company determines the multilateral netting balances * Includes paper-based and electronic credit transfers. Source: ECOS Economic Statistic System, May 2017. of each bank, which are then settled via the Cheque Clearing System. Cash Credit transfers can be initiated online, at bank branches or via Direct debits Payments made with a Visa or MasterCard payment card Cash remains an important payment medium in South Korea, ATM, telephone and mobile banking. Direct debits are available in South Korea for both high-value are cleared and settled by their respective international card particularly for low-value transactions. According to the BoK, 20% and low‑value payments. schemes. Debit card transactions are cleared through the of all payments are made using cash. ®® High-value and urgent interbank transfers are cleared and Electronic Funds Transfer at the Point of Sale system (EFTPOS). settled via BOK‑Wire+, the national RTGS system, on a real- There are two types of direct debit in South Korea: the bank In December 2016, the BoK launched a pilot programme whereby time basis. giro system direct debit for low-value payments and the CMS The KFTC operates a national Cash Dispenser network of ATMs. customers receive small change in the form of top-ups on pre- ®® Low-value, non-urgent and high-volume electronic credit debit transfer for high‑value commercial payments. A cross-border ATM network enables card holders to withdraw paid cards. This is the first stage in the central bank’s plan for transfers are processed via one of the nine retail payment cash from ATMs in the USA, Malaysia and the Philippines using South Korea to become a ‘coinless’ society. systems operated by the Korea Financial Telecommunications Cheques domestically issued cards. & Clearings Institute (KFTC), on a real-time basis. Low-value The cheque is a common cashless payment instrument for Credit transfers credit transfers include payroll, supplier and third-party both retail and commercial payments. However, its use is in The Asian Payment Network (APN) initiative currently allows Credit transfers in South Korea can be paper based or automated, payments. decline due to an increasing preference for electronic payments ATM card holders in the South Korea to perform cash although the vast majority (96.1% in volume and over 99% in for both high-value and low‑value transactions. withdrawals at the ATMs of participating banks in each value) are automated. Companies subject to an external audit are Credit transfers accounted for 17.6% of the volume of all member country (Australia, China, Japan, Indonesia, Malaysia, required to use electronic credit transfers. Cheques are truncated into electronic items before being New Zealand, the Philippines, Singapore, South Korea, cashless payments in 2016, and 93.5% of the value. cleared via the BCS. Final settlement is via MACSS. Funds are Thailand and Vietnam), through a linked ATM network. available to beneficiaries on a T+1 or T+2 basis.
16 HSBC Treasury Management Profile 2018 | South Korea HSBC Treasury Management Profile 2018 | South Korea 17 Payment Systems The APN’s aim is to become a settlement network for a range % volume of all cashless Type The KFTC also operates the B2C and B2B Electronic Commerce of retail payments across Asia. In South Korea, the initiative is payments 2016. BOK-Wire+ , South Korea’s real-time gross settlement (RTGS) Payment systems, which support e-commerce and process operated by KFTC. system, is operated by the BoK. e-commerce transaction funds transfers. Electronic wallets The KFTC (Korea Financial Telecommunications & Clearings ®® The B2C system provides a real-time service for funds Electronic money schemes are available in the form of reloadable Institute) operates nine retail payment systems. These are transactions between consumers and sellers. It also provides a pre-paid cards. Post-payment and pre-paid transportation Credit Transfers 17% multilateral net settlement systems. Final settlement via BOK- real-time enquiry service. cards such as the K-CASH card, are popular. The K-CASH card Direct Debits 3.7% Wire+ occurs across the participants’ accounts held at the BoK. ®® The B2B system serves as a payment channel for the ORB can be registered to a customer’s current/deposit account Cheque Cards 26% The nine systems are: (online registered bill). The ORB is the most common payment or remain unregistered. The maximum value allowed for a Credit Card 44% made in the B2B system and combines the payment facilities registered K-CASH card is KRW 500,000 and KRW 50,000 for an Cheques 0.8% ®® The Cheque Clearing System: a multilateral net settlement of a cheque with the credit function of a bill. unregistered card. Debit Transfers 7.3% system consisting of 50 regional clearing houses. ®® The Bank Giro System: giros can be paper-based giros, Participants New schemes, such as the Samsung Pay Transportation Card electronic giros or internet giros. BOK-Wire+ has 132 participants, of which 59 are banks and 73 (consolidating the T-Money and Cashbee (formerly Mybi) travel ®® IFTNET (Interbank Funds Transfer Network) system: there is a are non‑banks. cards), allow users to pay for their travel with their mobile phone. % value of all cashless maximum value threshold of KRW 500 million per transaction. payments 2016 Payments are settled on a next-day basis. The Cheque Cleaning System has 27 direct bank participants. Samsung Pay is the country’s leading mobile payment app. ®® HOFINET (Electronic Banking/Firm Banking system): there is Launched in August 2015, in its first year of operation, The Bank Giro System has 25 direct bank participants. a maximum value threshold of KRW 1 billion per transaction transaction volumes reached USD 2 billion (25% of this is online), outside of normal banking hours. according to figures released by Samsung Pay. LG has recently IFTNET has 17 domestic bank participants and 13 special Credit Transfers 93.5% ®® CDNET (Interbank Cash Dispenser/Automated Teller Machine launched its mobile wallet app, LG Pay. Mobile payment apps are participants. Direct Debits 0.1% system): processes payments made through CD/ATM also available from the country’s leading banks. Cheque Cards 0.2% machines. There is a maximum value threshold of CDNET includes all South Korean domestic banks (with the Other payments Credit Cards 0.6% KRW 6 million. exception of the Export-Import Bank of Korea), the Post Office, Bills of exchange Cheques 5.4% ®® EFTPOS (Electronic Funds Transfer at the Point of Sale cooperative members of the National Agricultural Cooperative There are two kinds of bills of exchange in South Korea: bills of Debit Cards 0.1% system): there is a minimum value threshold of KRW 1,000 per Foundation and the National Federation of Fisheries Cooperatives, exchange and promissory notes. transaction. the Korean Federation of Community Credit Cooperatives, the Source: ECOS Economic Statistic System, May 2017. ®® The CMS (Cash Management Service) system: collects money National Union Federation of Korea and the Korea Federation of Promissory notes are used by companies in a similar fashion to from payor’s accounts at different banks into one account held Savings Banks. It has eight special participants. current account cheques, i.e. as post-dated instruments for large- in a particular bank. value fund or tax payments. ®® BANKLINE (Local Banks Shared system): enables customers HOFINET has 24 participants, including 18 domestic direct to effect account transactions at any participating bank participants, two foreign banks and four specialist institutions. regardless of their location. The system is designed for banks EFTPOS has 17 direct participants. without nationwide branch networks. ®® K-CASH (E-money card): settles debits and credits between The CMS system has 29 bank participants and 22 asset financial institutions. The system has a maximum rechargeable management/financial investment companies. amount of KRW 500,000 for registered cards and KRW 50,000 for non‑registered cards. BANKLINE has six participants. 1. ECOS Economic Statistic System, May 2017.
18 HSBC Treasury Management Profile 2018 | South Korea HSBC Treasury Management Profile 2018 | South Korea 19 The B2C Electronic Commerce Payment system has 15 EFTPOS processes all payments made via POS terminals. K-CASH is available 24 hours a day. ®® 11:00: final settlement takes place across participants’ participants. accounts held at the BoK via BOK-Wire+. Funds are available The CMS system processes credit and debit transfers of all The B2C E-Commerce system is available 24 hours a day. to beneficiaries on a next-day basis. The B2B Electronic Commerce Payment system has 15 values. Available to companies, the CMS collects money from participants. payor’s accounts at different banks into one account held in a The B2C E-Commerce system is available 24 hours a day HOFINET customer’s main bank. There is no value threshold. Payments are processed 24 hours a day, seven days a week, Transaction types processed Clearing cycle details although participants may choose to stop operating their system BOK-Wire+ processes high-value and urgent KRW interbank BANKLINE processes funds transfers and other banking BOK-Wire+ for payment processing between 00:00 and 17:00. transfers. In addition, BOK-Wire+ effects the final settlement of transactions for local banks. There is no value threshold. ®® 09:00–17:30: BOK-Wire+ settles transactions in real time and participants’ net balances originating from South Korea’s other with immediate finality. ®® 11:00: final settlement takes place across participants’ clearing houses. There is no value threshold except for transfer K-CASH processes K-CASH electronic money card transactions. ®® 11:00: final settlement of all net obligations. accounts held at the BoK via BOK-Wire+. Funds are available entries of third-party funds that have a minimum threshold of on a real-time basis. KRW 1 billion. The B2C Electronic Commerce Payment system processes Final settlement takes place across the participant banks’ funds transfers between retailers and customers in real time. correspondent accounts at the BoK. CDNET JPY and USD-denominated interbank payments are also ®® Operates 24 hours, seven days a week. processed, providing banks have a foreign currency deposit B2B Electronic Commerce Payment system deals with Cheque Clearing System ®® 11:00: final settlement takes place across participants’ account at the BoK. contract information between businesses. It both issues and Cheques are truncated into electronic items before being accounts held at the BoK via BOK-Wire+ on a next-day basis. processes ORBs and interbank fund transfers. processed by the Cheque Clearing System. The Cheque Clearing System processes all KRW-denominated The CMS system current account cheques, cashier’s cheques, bills of exchange Operating hours Cheques are transmitted to the system for overnight clearing. Debit transfers: and promissory notes. There is no value threshold. BOK-Wire+ operates from 09:30 to 17:30 local time, Monday to Clearing takes place until one hour before the start of the Friday. The BoK may extend operating times if necessary. The BoK following business day; settlement data is then transmitted to the ®® 17:00 D-1: cut-off time for next-day withdrawal. The Bank Giro System processes giros, paper-based and plans to extend the current BoK-Wire+ operating hours by one BoK via the internet. ®® 12:00 D: cut off for same-day withdrawal. electronic credit transfers, direct debits, standing orders and hour in 2017/18. ®® 11:00 D+1: final settlement takes place across participants’ ®® 11:00: final settlement takes place across participants’ internet giros. There is no value threshold. accounts held at the BoK via BOK-Wire+. The Cheque Clearing System operates overnight from 17:00 to accounts held at the BoK via BOK-Wire+ on a next-day basis. 08:00, local time, Monday to Friday. ®® 12:00: Holders of cashier’s cheques can withdraw funds. IFTNET processes KRW-denominated cashier’s cheques, cash, Credit transfers: irregular credit transfers and cashier’s cheque information ®® 14:20: Withdrawal of funds for all other bills and checks. The Bank Giro System operates from 09:00 to 22:00 local time, enquiries. There is a maximum value threshold of KRW 500 ®® 14:00: cut-off time for credit payments to be sent to the KFTC. Monday to Friday. Bank Giro System million per transaction. ®® 11:00: final settlement takes place across participants’ ®® 09:00–16:00: the KFTC clears bank paper and electronic giro accounts held at the BoK via BOK-Wire+ on a next-day basis. IFTNET operates from 09:00 to 16:00 local time, Monday to HOFINET processes domestic currency payments made through transactions. Friday. electronic banking, which includes mobile, internet and phone ®® 00:30–23:30: internet giros are cleared. banking. There is a maximum value threshold of KRW 1 billion CDNET operates 24 hours, seven days a week. ®® 11:00: final settlement takes place across participants’ per transaction outside of normal banking hours. Payments are accounts held at the BoK via BOK-Wire+. Funds are available Currency centre holidays typically settled on a real-time basis. EFTPOS operates 08:00 to 23:30 local time, seven days week. to beneficiaries within two to three business days. 2018 1, 15–17 Feb, 1 Mar, 1, 7, 22 May, 6 Jun, HOFINET is available 24 hours a day. 15 Aug, 24–26 Sep, 3, 9 Oct, CDNET processes payments and transactions made via CD/ATM IFTNET 25, 31 Dec terminals. There is a maximum value threshold of KRW 6 million ®® 09:00–16:00: a customer’s account is instantly debited and BANKLINE operates from 09:00 to 16:00 local time, Monday credited when a payment instruction is made. Source: www.goodbusinessday.com. per fund transfer. to Friday.
20 HSBC Treasury Management Profile 2018 | South Korea HSBC Treasury Management Profile 2018 | South Korea 21 Cash Management Domestic Short-term investments Notional pooling ®® Interest can be earned on resident and non-resident demand Notional pooling is permitted in South Korea. deposit accounts. ®® Time deposits are available to residents in KRW or major Cash concentration foreign currencies, with maturities ranging from overnight to Cash concentration is permitted between resident and non- five years. Non‑resident entities are not permitted to invest in resident companies with zero balancing the most commonly used KRW-denominated time deposits with maturities of less than cash management technique. one year. ®® Certificates of deposit are offered by commercial banks, It is prohibited to trade the KRW outside of South Korea. with maturities of 30 days to five years. Most are issued Collections for three months. The minimum investment amount is Collection accounts can be held by companies at different KRW 10 million. local banks, allowing them to settle an account by making an ®® Treasury bills are issued with maturities up to 20 years. internal transfer within the selected bank. Once collected, cash The minimum investment amount is KRW 10 billion. management providers automatically concentrate balances in ®® Monetary Stabilisation Bonds are issued by BoK, each collection account to a master account. with maturities ranging from 14 days to two years. ®® Money market funds are widely available. Cross-border ®® Repurchase agreements are available. Cross-border payment instructions are routed via SWIFT and settled through accounts held with correspondent banks abroad. Custody and securities settlement1 Cross-border payments can also be made via a foreign currency Depository demand draft. ®® Korea Securities Depository (KSD). The KFTC operates the Extended Korea Payment Network (EXK), The KSD is the sole central securities depository of Korea, which links domestic and overseas payment and settlement providing a wide range of post-trade services for the Korean networks. The system enables domestic bank customers to securities market. use payment services, such as cash withdrawal and balance enquiries, in other countries. EXK services are available in the Settlement cycle USA, the Philippines, Malaysia, Vietnam and Thailand. KOSPI Market ®® T+2 for stocks. A number of banks have entered into bilateral correspondent banking relationships in order to provide international services, ®® T+1 for government bonds. including TARGET and the European Banking Association’s ®® T for general bonds. EURO1, STEP1 and STEP2 services. KOSDAQ Market Lifting fees ®® T+2 for stocks. Lifting fees are applied on funds transfers between resident and ®® T+1 for derivatives (options, futures). non-resident accounts either as a flat fee for a range of transfer values, or as a percentage of the total transaction value. 1. Data as at February 2017.
22 HSBC Treasury Management Profile 2018 | South Korea HSBC Treasury Management Profile 2018 | South Korea 23 Electronic Banking There were Electronic banking is available in South Korea and offered by all of the country’s banks. There is no bank-independent electronic banking standard. 7.8 million business All electronic banking users must sign an electronic banking agreement with their bank before using internet or phone banking internet banking services. Under the terms of the Digital Signature Act, all internet transactions made with digital certificates are legally valid in customers and South Korea. Internet and mobile banking is offered by all of the country’s 114.8 million leading banks for both corporate and retail purposes. However, PC-based internet banking is rapidly being replaced by smartphone-based mobile banking. According to BoK: individual internet ®® There were 7.8 million business internet banking customers and 114.8 million individual internet banking customers in banking customers in 2016, a year-on-year increase of 9.7% and 4.6% respectively. Over the same period, there were three million internet 2016, a year-on-year banking transactions, with a total value of KRW 154,703.8 billion, an increase of 16.9% and 5.3% respectively on 2015 figures. increase of 9.7% and ®® In Q1 2017, the number of internet and smartphone banking service users had increased 2.3% to approximately 125.3 million. Over half of all the users (77.3 million) were 4.6% respectively. smartphone-based banking users. ®® There were 57.3 million smartphone transactions processed per day in Q1 2017, a 7.3% increase on the previous quarter. The value of transactions rose 8.3% to KRW 3.62 trillion. ®® 40.7% of internet banking services are used for depositing, withdrawing or remitting money. Individuals are limited to making a one-off transfer of KRW 100 million. There is a daily limit of KRW 500 million. Corporate users are limited to making a one-off transfer of KRW 1 billion. Corporates have a daily limit of KRW 5 billion. South Korea has an internet penetration rate of approximately 99%1. Smartphone penetration is 70.4%2. 1. Ministry of Science, ICT and Future Planning, 2016. 2. www.eMarketer.com, 2016.
24 HSBC Treasury Management Profile 2018 | South Korea HSBC Treasury Management Profile 2018 | South Korea 25 Trade Finance Buyers need the Imports Documents In order to import goods into South Korea, a bill of lading, Exports Documents In order to export goods from South Korea, a customs Key import partners bank’s financing customs declaration, commercial invoice, certificate of origin, and packing list are required. declaration, commercial invoice, certificate of origin, bill of lading and packing list are required. China 20.7% support for their Licences The majority of goods can be imported into South Korea without Licences Excluding items on the negative list, all products can be exported Japan USA 10.5% 10.1% Germany importation of a licence. without restriction. 4.8% Saudi Arabia 4.5% Taxes/tariffs and other fees Taxes/Tariffs and other fees crude oil/gas South Korea is a member of the 21-member Asia-Paciﬁc Economic Cooperation (APEC) forum, which intends to lift all trade and investment barriers in the region. No taxes are charged on exports from South Korea. Prohibited exports Key export partners and other goods. South Korea has signed a free trade agreement (FTA) with the A negative list (of products that may not be exported) is in operation. Association of Southeast Asian Nations (ASEAN). Almost all trade Sellers need the with ASEAN nations is tariff free. Financing imports and exports Imports China 26% USA 13.3% bank’s financing South Korea has also signed an FTA with Canada, China, the EU, The buyers in Korea need the bank’s financing support for their Turkey, the USA and Vietnam, and a Comprehensive Economic importation of crude oil/gas and other goods. Hong Kong 5.8% Partnership Agreement has been signed with India. Vietnam 5.3% support for their Exports Japan 4.9% South Korea classifies imported goods using the Harmonised The sellers in Korea need the bank’s financing support for their Customs System. Most products are assessed on an ad valorem export of goods to the buyers in all regions. export of goods. Source: The World Factbook. Washington, DC: Central Intelligence Agency, 2017 basis. The average customs duty paid is about 13.3%. (https://www.cia.gov/library/publications/resources/the-world-factbook/index.html). The Korean Customs Service publishes an annual list of goods that are liable for adjustment tariffs. Currently 14 items are subject to anti‑dumping duties. South Korea has eight operational free economic zones: Incheon, ChungBuk, East Coast, Busan-Jinhae, Gwangyang Bay Area, Yellow Sea, Daegu‑Gyeongbu and Saemangeum Gunsan. Prohibited imports A negative list (of products that may not be imported) is in operation. It is prohibited to import certain commodities into South Korea, in order to protect fauna and flora, and for national security and moral reasons.
26 HSBC Treasury Management Profile 2018 | South Korea HSBC Treasury Management Profile 2018 | South Korea 27 Useful Websites Bank of Korea www.bok.or.kr Leading banks: Industrial Bank of Korea eng.ibk.co.kr KB Kookmin Bank www.kbstar.com KDB Bank www.kdb.co.kr Shinhan Bank www.shinhan.com/en Woori Bank www.wooribank.com Financial Supervisory Commission www.fsc.go.kr/eng/ Korea Federation of Banks wwww.kfb.or.kr Korea Association for Chief Financial Officers www.cfokorea.org Ministry of Strategy and Finance english.mosf.go.kr Ministry of Knowledge Economy www.koisra.co.kr Disclaimer Korea Chamber of Commerce and Industry http://english.korcham.net/nChamEng/ This document has been produced by HSBC Bank plc and members of the HSBC Group (“HSBC”), together with their third-party contributor, WWCP Limited. We make no representations, warranties or guarantees (express or implied) that the information in this document is complete, accurate or up to date. We will not be liable for any liabilities Service/About/appl/Chairman.asp arising under or in connection with the use of, or any reliance on, this document or the information contained within it. It is not intended as an offer or solicitation for business to anyone in any jurisdiction. The information contained in this document is of a general nature only. It is not meant to be comprehensive and does not constitute financial, Korea International Trade Association www.kita.org legal, tax or other professional advice. You should not act upon the information contained in this document without obtaining your own independent professional advice. The information contained in this document has not been independently verified by HSBC. Invest Korea www.investkorea.org This document contains information relating to third parties. The information does not constitute any form of endorsement by these third parties of the products and/or KRX Korea Exchange eng.krx.co.kr services provided by HSBC or any form of cooperation between HSBC and the respective third parties. Korea Financial Telecommunications & Clearings Institute www.kftc.or.kr Under no circumstances will HSBC or the third-party contributor be liable for (i) the accuracy or sufficiency of this document or of any information, statement, assumption or projection contained in this document or any other written or oral information provided in connection with the same, or (ii) any loss or damage (whether direct, indirect, Statistics Korea kostat.go.kr/portal/korea/index.action consequential or other) arising out of reliance upon this document and the information contained within it. HSBC and the third-party contributor do not undertake, and are under no obligation, to provide any additional information, to update this document, to correct any inaccuracies or to remedy any errors or omissions. HSBC website details No part of this document may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or HSBC Commercial Banking www.hsbc.co.kr/1/2/business/home otherwise, without the prior written permission of HSBC and the third-party contributor. Any products or services to be provided by HSBC in connection with the information contained in this document shall be subject to the terms of separate legally binding documentation and nothing in this document constitutes an offer to provide any products HSBC Global Banking and Markets www.gbm.hsbc.com or services.
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