Foreign Exchange Regulations and Regulatory Framework (Foreign Exchange Transactions Act)
This domain tests the Foreign Exchange Transactions Act (외국환거래법), its Enforcement Decree, and the Foreign Exchange Transaction Regulations. Items ask who is a resident, whether a transaction is current or capital, and whether it needs reporting, approval, or only bank verification.
Core classification
Current transactions - trade in goods and services, ordinary remittances, interest and dividends - are in principle free, but must be made through a foreign exchange bank with supporting documents. Capital transactions - overseas direct investment, portfolio investment, loans, guarantees, real estate, derivatives - are governed by a negative-list system: permitted unless restricted, but subject to report or approval. Reporting usually goes to the Bank of Korea or, for designated transactions, to the foreign exchange bank; approval is reserved for the Minister of Economy and Finance.
Resident status
Residents include Korean nationals domiciled in Korea and Korean entities; branches of foreign companies in Korea are residents for their Korean operations. Non-residents are treated differently for won accounts, deposits, and property.
Worked example
A Korean manufacturer wants to lend USD 500,000 for three years to its Vietnamese subsidiary. This is a capital transaction (overseas lending), not a current transaction, so it cannot be processed as an ordinary payment. The company must file the required overseas-lending report with the Bank of Korea through its foreign exchange bank and keep the loan agreement and remittance evidence. Without the report the remittance is restricted even though the money is the company's own.
Traps
- Assuming current transactions need approval; they need documentation and bank checks.
- Confusing report (신고) with approval (허가).
- Treating a foreign-invested company in Korea as a non-resident.
- Ignoring that won payments between residents and non-residents are also foreign exchange transactions.