Deutsche Bank
Global Transaction Banking
How Bank can support FDI companies
in Korea
Deutsche Bank
Corporate Banking Coverage
Mari Namihira
CBC Asia/Europe xRegional call
Agenda
1
FDI companies' FAQs to Bank
2
Regulatory environment
3
Cash Management-related Regulations
4
Loan Structure Overview
5
Inter-Company Loan Regulations
6
KRW FX Related Regulation
Deutsche Bank
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FDI companies' FAQs to Bank
1. Capital Injection / Capital Increase

Whether Foreign Investors need to open bank account - No !

Capital injection procedure for company establishment & acquisition of local companies

Under Foreign Investment Promotion Act : ‘Bank acts as a route of notification’
2. Liquidity Management

Inter-company loan ( non-resident <=> resident )

Domestic cash pooling

Cross-border cash pooling – ‘ Consolidated Management of Funds’ under FETR ( Foreign Exchange
Transaction Regulation)
3. Repatriation : how to pull cash surplus out of Korea is the most interesting topic now!

Dividend

Capital Decrease

Domestic entity’s intercompany loan to overseas entity : prior approval from Bank of Korea
Deutsche Bank
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FDI companies' FAQs to Bank
4. Foreign Exchange Transaction

Requirement of Underlying Documents in cross-border related payment under FETR

FX hedge – only hedge purpose under FSCMA ( Financial Investment Services and Capital Markets Act)

Non-Resident Free KRW Account under FETR

KRW invoicing becomes trend among MNCs

KRW denominated intercompany loan
5. Corporate Banking Products and Services by bank

Cash Management Service – internet banking system, ERP interface etc.

Capital Market/Foreign Exchange – FX spot & forward, swap etc.

Trade Finance – L/C, import & export financing, Bank Guarantee, Supply Chain Solutions etc.

Credit products – Credit line for Loan, Overdraft

Advisory service on local regulations including FETR
Deutsche Bank
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FDI companies' FAQs to Bank
6. Banking Industry in Korea

Most advanced internet banking platform and clearing systems providing real time service in IT
infrastructure perspective

World number 1 in transaction speed and user-friendly e banking platform for most banking products
and services

Korea is the only country for banks to provide Beneficiary Validation Service before payment execution

Electronic p-note, B2B ( ;electronic ways of supply chain financing program) actively used

Multi-collection accounts with multi banks : market practice is to maintain accounts in many different
banks for collection – typically buyers prefer to pay through their main banks
Deutsche Bank
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Regulatory environment: Authorities and Regulations
Ministry of Strategy
and Finance (MOSF)
 Main regulator on foreign exchange related transactions
 Main financial policy maker
 Central Bank, independent from MOSF
Bank of Korea (BOK)
 Formulates inflation targeting and implements monetary policy
 Enforces FX laws and monitors markets activity
Financial Supervisory Services
& Financial Supervisory
Commission (FSS / FSC)
 Supervisory function for banks
 Financial policy maker on various financial regulations
Regulatory Restrictions
Relaxations
 KRW is freely tradable (spot and forward) but physical settlement
only possible in Korean onshore market
 In April 2002 government introduced long-term plan to fully liberalize
foreign exchange and started to ease FX regulations (step-by-step)
 Incoming and Outgoing cross-boarder remittances are restricted /
controlled
 Hedging of FX-risk via Forwards, Swaps and Options possible
(currency options allowed since April 1999)
 Generally no free transfers - Documentary evidence of underlying
commercial transactions has to be submitted to remitting bank
 Underlying documentation for outgoing payments related to import
can be waived if import volume of the previous year exceeds 50mn
USD (import record certificate issued by Korean International Trade
Association to be submitted)
 Strict regulation on Derivative transactions –only allowed for
hedging purposes (FSCMA, effective since 4th Feb 2009)
Deutsche Bank
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Cash Management-related Regulations
Outgoing Overseas Payments
 Amount below 1,000 USD (or equivalent): no documents required
 Amount below 100,000 USD (or equivalent): Copies of evidentiary documents
 Amount above 100,000 USD (or equivalent): Original evidentiary documents
 Examples of required documents for specific transactions:
 Importing goods:
Remittance request (BOK format) or electronic instruction via db-direct internet,
Original import license or the copy of electronically issued import license, invoice
 Sales commission: Remittance request (sealed by registered company seal), invoice
 Dividend payment: Remittance request (sealed by registered company seal), copy of Foreign Investment
Report, copy of minutes of shareholders’ meeting, financial statements
 Underlying Documentation for import-related outgoing payments can be waived if import volume of the
previous year exceeds 50mn USD
Import Record Certificate issued by Korean International Trade Association has to be submitted
Cross-Border 3rd Party Payments

3rd party incoming payment is allowed without any reporting requirements to BOK
 Exception: Incoming payment from other resident on behalf of a non-resident requires BOK notification

3rd party outgoing payment is allowed. The payment should be documented with:
 Assignment Agreement of all 3 parties (issuer of the invoices, 3rd party beneficiary of the invoice, payer)
 Reporting and Acceptance by BOK prior to execution
Deutsche Bank
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Cash Management-related Regulations
Domestic / Onshore Inter-Company Loans / Cash-Pooling
 Cash Pooling among more than one entity is classified as inter-company loans by the National Tax Service
(NTS), thus several negative tax implications arise :



Deemed interest rate (6.9%) vs Weighted Average Interest rate
Denial of interest expense
Withholding tax : 25% of interest income should be withheld by the borrowing company as compared to 14% in bank loan
 Documentation in the form of loan agreements and additional operational tasks are to be done (i.e. interest /
withholding tax calculation and payments)
 Deemed rate of interest for onshore inter-company loan: Weighted Average Cost of Borrowing (based on
3rdparty borrowing). 6.90% p.a. (fixed by NTS), if WACB is not applicable
 Notional cash-pooling is not allowed in Korea, however you may consider domestic intercompany-loans.
Please consult your tax advisor with regard to above mentioned tax implications.
Cross-Border Bilateral and Multilateral Netting
 Cross-border bilateral and multilateral netting is allowed subject to prior notification (i.e. approval) to BOK
on transactional basis with the following documents:
 Notification (BOK format) and Explanation (free format) of Netting
 Copy of registration certificate of foreign-capital invested company (sealed)
 Copy of transaction agreement (master agreement for netting between all parties involved)
 Documentary evidence for claims and liabilities (e.g. ex-/import permit, service agreement, invoice etc)
 Covering List explaining documents and related calculations
 Only for Bilateral Netting: If set-off amount is less than 500,000 USD or if foreign-capital invested exceeds
10mn USD (equivalent) notification can also be made to designated FX-bank (i.e. Deutsche Bank)
Deutsche Bank
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Cash Management-related Regulations
Overseas Deposit
 Oversea deposit over 50,000 USD per entity is allowed subject to prior notification (i.e. approval) to
BOK with the following documents:
 Notification (BOK format) and Explanation (free format) of oversea deposit
 Copy of registration certificate of foreign-capital invested company (sealed)
 Deposit application form with tenor and amount filled in
 Financial Statements to prove origin of fund
 Other documents which may requested by Bank of Korea
 If deposit or credit balance is over 500,000 USD at the end of year , account balance report should be
reported by the end of January in following year
 If previous year’s volume of import and export exceeds 5 mill USD, oversea deposit over 50,000 USD
per entity is allowed through notification to FX designated bank
Deutsche Bank
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9
Loan Structure Overview
Onshore Loans
KRW Loans
 Overdraft
 Revolving
Short-Term Loans
 Mid-Term Loans
 Syndicated Loans
Mandatory Government Charges
FCY Loans
KRW and FCY onshore loans
 Strictly limited by BOK to
“payment for oversea use”
 i.e. no FCY lending for
general working capital
purpose possible
 Mandatory government charges of 33.6bps apply:
 32bps contribution to KCGF/KTCGF - Korea
Credit (Technology) Guarantee Fund
1.6bps (of monthly average loan balance) to
District Credit Guarantee Foundation and
Korean Federation of Credit Guarantee
Foundations
Offshore Loans – by banks or Inter-Company
 Possible in KRW or FCY, no restriction on use of funds, no mandatory government charges
 Withholding Tax (WHT): will be levied on interest payments to offshore loan providers at 22.0%. Can be lowered
depending on Double Tax Treaties in place (e.g. USA 13.2%, Germany/France 10%, Netherlands 15%, Ireland 0%)
* Double Tax Treaties of Korea can be found under http://www.nts.go.kr/eng/resources/resour_02.asp?
 Thin Capitalization Tax: If inter-company-loan amount exceeds 300% of shareholder equity, interest payments on
the “excessive portion” are not tax deductible
 Transfer Pricing Rules: Usual arms-length principle applies for offshore inter-company loan
 Certain reporting & approval requirements by FX-bank, MOSF and/or BOK (details see following slides)
Deutsche Bank
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Inter-Company Loan Regulations
Loan by non-resident to resident in Foreign Currency (FCY)
 Loan amount of USD30mn equivalent or less (including cumulated amount of newly handled loan for the
past 1 year at the time of reporting):
 Reporting to FX bank (i.e. Deutsche Bank Seoul) by resident shall be sufficient to arrange the loan, i.e.
a short term loan with tenor 1 year or less also can be arranged without any prior reporting to Ministry
of Strategy and Finance ("MOSF")
 Loan amount exceeding USD30mn equivalent (including cumulated amount of newly handled loan for the
past 1 year at the time of reporting):
 The resident is required to declare the fact to the MOSF through a designated correspondent bank, i.e.
Deutsche Bank Seoul
– Exception: In case the borrower is foreign invested company which is engaged in manufacturing or is classified as high-tech company
and the tenor of the loan is less than 1 year - to be reported and accepted by FX bank [max. loan amount: manufacturing company - 50%
of foreign invested amount /high-tech company - 100% of foreign invested amount in case the foreign-invested ratio exceeding one-third,
otherwise 75% of foreign invested amount]
Loan by resident to non-resident in Foreign Currency (FCY)
 In general, the resident should make notification to Bank of Korea (BOK) prior to the loan execution (the
notification should be accepted by BOK prior to the loan execution).
 However for the following case, the nonresident (borrower) should make notification to BOK prior to loan
execution: In case the loan is backed by payment guarantee or collateral provided by third resident.
Deutsche Bank
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Inter-Company Loan Regulations
Loan by non-resident to resident in local currency (KRW)

The resident should make a notification to a designated bank in case the amount is equivalent or less than
KRW 1.0bn ( including cumulated amount of newly handled loan for the past 1 year at the time of
reporting ). If the amount is above KRW 1.0bn, the resident should make a notification to MOSF prior to
the loan execution.

The non-resident needs to arrange KRW inter-loan through a “non-resident Free KRW account”
Loan by resident to non-resident in local currency (KRW)

In general, the resident should make notification to Bank of Korea ("BOK") prior to the loan execution (the
notification should be accepted by BOK prior to the loan execution).

However, for the following two cases, the non-resident (borrower) should make notification to BOK prior to
loan execution:
 In case the loan is backed by payment guarantee or collateral provided by third resident;
 In case the loan amount exceeds KRW 1bn (ca. USD 1mn)

Non-resident should have non-resident Free Won account to leave KRW loan.

When non-resident wants to transfer loan received thru non-resident Free Won Account to overseas, nonresident should notify it to BOK separately and it should be accepted by BOK before funds transfer.
Deutsche Bank
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Inter-Company Loan Regulations
Consolidated Management of Funds – Definition
 “Consolidated Management of Funds“ (CMF) is the consolidated management of surplus or
deficit funds between companies which agreed to do overseas deposits, foreign currency
loans, collateral provisions based upon funds sharing contracts
 The counterparties which may enter into funds sharing contracts are limited to the overseas
branches or HQ of Foreign Capital Invested Companies (including its affiliates overseas)
 Resident company must notify the details of the companies which are participating in the
fund sharing contracts, credit line (loan limits), etc to the Bank of Korea ("BOK") via FX
designated bank (i.e. Deutsche Bank Seoul). The notification needs to be accepted by BOK
before commencing "Consolidated Management of Funds"
 In addition, the resident company must report the status of the fund management (i.e. credit
and debit balance) to BOK on quarterly basis
Deutsche Bank
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Inter-Company Loan Regulations
Consolidated Management of Funds – General Rules
 There should be tangible or intangible economic benefits to the participants, the benefits
should be equally shared, and there should be no advantageous (or disadvantageous)
conditions to a single corporation
 Limit amount for "Consolidated Management of Funds“: 30,000,000 USD in total per single
resident company/Foreign Capital-Invested company
 Maximum tenor of the overseas deposits, loans, etc: up to 1 year
 Interest rates for the overseas deposits, loans, etc: Arms-length principle applies
 Repayment or New loan should be executed within 1 month after request
Deutsche Bank
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Inter-Company Loan Regulations
Inter-Company Loan vs. Consolidated Management of Funds - Comparison
Inter-Company Loan
by Non-Resident to Resident
Consolidated Management of Funds
Amount
No limit
up to 30,000,000 USD
Tenor
No restriction
up to 1 year
Below 30mn USD: DB Seoul
BOK (Bank of Korea)
Notification /
Approval
Reporting after
Execution
Above 30mn USD: MOSF (Ministry of
Strategy and Finance) / Designation of DB
Seoul as FX bank is required before
notification
Designation of DB Seoul as FX bank
is required before notification
No requirement
Quarterly reporting to BOK
by a resident company
Deutsche Bank
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KRW FX Related Regulation - Derivatives under CMA
Financial Supervisory Services requirements for Corporate Hedging
■ Under Capital Markets Act (“CMA”) commenced in Feb 09, corporate client is categorized into either
Professional Investor (PI) or General Investor (GI) when performing hedge trade (FX Forward / Swap / Option,
IRS, CRS, etc)
Document Requirements for GI
1. General Investor Acknowledgement Form : Know-Your-Client (KYC) Form
2. Product Summary Form : To be provided by the Bank / To be signed & returned by client
3. Underlying Hedge Document : Payment Invoice, Export/Import Balance, Financials, Loan Contract, etc
Requirements for PI
1. GI documents are not required : However, client needs to register with Korea Financial Investment Association
(KOFIA) and obtain a registration number
2.To apply for PI status:
- Company should be listed in the stock market, or
- Hold financial investment instruments equivalent to KRW 10bio or above
Deutsche Bank
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KRW FX Related Regulation - Derivatives under CMA
FX Risk Management Regulation by FSS

Risk Management Standards for Foreign Currency Derivatives Transactions
- This regulation applies to all corporate clients performing only FX hedge – Applicable to PI
- This new regulation pertains only to KRW cross currencies : USDKRW, EURKRW, JPYKRW etc -Applicable to PI
(Not applicable to G10 currency pairs vs For GI, applicable to G10 as well)
- Clients can only hedge up to 100% of total hedge exposure – Applicable to GI, PI
Document Requirements
1. Confirmation : submitted only once in the beginning – Applicable to PI
2. Foreign Currency Derivatives Transaction Outstanding Amount Confirmation
: To be checked by the Bank upon each trade – Applicable to PI
3. Underlying Hedge Document : once a quarter (GI) / year (PI) -most recent financial or export/import data
Deutsche Bank
17
Disclaimer
Disclaimer
The information herein is believed to be reliable and has been obtained from sources believed to be reliable, but we make no
representation or warranty, express or implied, with respect to the fairness, correctness, accuracy, reasonableness or
completeness of such information. In addition we have no obligation to update, modify or amend this communication or to
otherwise notify a recipient in the event that any matter stated herein, or any opinion, projection, forecast or estimate set forth
herein, changes or subsequently becomes inaccurate.
We are not acting and do not purport to act in any way as an advisor or in a fiduciary capacity. We therefore strongly suggest that
recipients seek their own independent advice in relation to any investment, financial, legal, tax, accounting or regulatory issues
discussed herein. Analyses and opinions contained herein may be based on assumptions that if altered can change the
analyses or opinions expressed. Nothing contained herein shall constitute any representation or warranty as to future
performance of any financial instrument, credit, currency rate or other market or economic measure. Furthermore, past
performance is not necessarily indicative of future results.
This communication is provided for information purposes only. It is not an offer to sell, or a solicitation of an offer to buy, any
security, nor to enter into any agreement or contract with Deutsche Bank AG or any affiliates. In addition, any subsequent
offering will be at your request and will be subject to negotiation between us. It is not intended that any public offer will be
made by us at any time, in respect of any potential transaction discussed herein. Any offering or potential transaction that may
be related to the subject matter of this communication will be made pursuant to separate and distinct documentation and in
such case the information contained herein will be superseded in its entirety by such documentation in final form.
This communication and the information contained herein is confidential and may not be reproduced or distributed in whole or in
part without our prior written consent. Copyright ⓒ 2014 Deutsche Bank AG.
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