Witholdings Taxes on Transactions between Korean & Hong Kong Companies

The Republic of Korea and Hong Kong signed a double taxation treaty on July of 2014.  The treaty will come into force, if ratified, by the respective assemblies.  Under Korea Tax Law, the, normal, withholding tax is 22%.  The main purpose of the treaty is to reduce this rate and, also, allow the governments to share information on potential tax evaders.  This double taxation treaty, among other things, includes provisions for: A 15% Withholding Tax on dividends and a 10% Withholding Tax if the company receiving the funds owns a minimum 25% interest in the company remitting the dividends;  A 10% Withholding Tax on most interest and royalties;  A cooperation mechanism to share tax information in order to apprehend Korean tax evaders; and  Taxation on capital gains, only, in the country where the income was earned.  ___Sean Hayes may be contacted at: [email protected] Sean Hayes is co-chair of the Korea

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Derivative/Shareholder Suits in Korea: Corporate Governance in Korea

Much like the United States, Korean law permits shareholders of a company to file a lawsuit against the company’s directors/third parties, on behalf of the company, when directors’/third parties’ wrongful acts result in losses or may later result in losses. In this type of legal action in Korea, known, often, as a derivative suit, the plaintiff-shareholders do not bring a claim as themselves as individuals, but as representatives of the corporation, the entity suffering the harm but which otherwise would be unable to raise a claim. In Korea, Article 403 of the Korean Commercial Code defines the statutory basis for derivative suits. The Code provides that a shareholder, holding at least 1/100 of the total issued and outstanding shares of a company, may sue a director on behalf of the company shareholders. With regard to listed companies, the code permits derivative suits when a shareholder has held not less than

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Korean Intellectual Property Theft Enforcement/Monitoring Program by IPG Legal is now Flat-Fee Billed

Because of an increase in interest from clients in flat-services, we have created a Flat-Fee Billed IP Theft Enforcement & Monitoring Program for our Korea & China offices.  As you know, most lawyers charge based on time even if they are not telling you they are.  We all calculate services based on time.  Thus, we developed this fee scale based, primarily, on the following factors: 1.  Geographical Scope of the IP Monitoring;2.  Number of Cease & Desist Letters Mailed; 3.  If the IP Theft will be Reported to the Prosecution; and4.  If a Civil Suit is Required to be Filed. We are utilizing the same group of retired Korean judges, prosecutors and attorneys for this work, in Korea, thus, the same aggressive and proactive approach is offered.  The, only, difference is you will no longer receive an invoice based on hours docked.  Nothing changes, but the format of the bill. 

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Korean Tourism Infrastructure Improving: Special Act for the Expansion of Tourism Accommodation

The Korean Tourism Organization under the leadership of a German-born non-ethnic Korean is the greatest reason for the increase in the number of tourists in Korea.  The KTO has been transformed from a government black hole into a vibrant organization with a bold vision. One of the most significant issues for tourists visiting Korea, because of the drastic increase in tourism over the past few years, has been the lack of adequate accommodation. Seoul is notorious for having, during peak times of the year, a lack of adequate business class rooms.  The situation is even more dire in many of the more remote areas.  The recent implementation of the Special Act for the Expansion of Tourism Accommodation Facilities is intended to help resolve this issues.  The Act’s most significant benefits includes: Extending the maximum period for a lease of a hotel facility to 30 years from the present five years;

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Executive Compensation Necessary to be Publicly Disclosed in Korea: Korean Commercial Law

Until a recent amendment to the Korean Commercial Code, the compensation of executives in listed companies was not required to be disclosed to shareholders.   Most developed economies require this disclosure. The prior law, only, required the total compensation for all directors to be disclosed to shareholders. The new rule, which comes into effect on November 29, 2013, requires that all registered directors of companies annual compensation be disclosed if the amount of the individual’s annual compensation exceeds KRW 500 million Korean won. The amended Korean Commercial Code, also, requires that companies disclose the criteria for choosing the compensation.  We suspect to see cases filed related to the payment criteria and differentials in payment between certain directors. Some family-controlled companies will, likely, drop some family members from boards. These family members will, likely, be paid as mere company employees and, not, as board members. Thus, circumventing the purpose of the

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Korean Small Business Partnerships/Joint Ventures: Pubs, Distributors, Exporters, Boutiques, Franchises and Basic Manufacturing etc.

Starting a small business in Korea can be enjoyable and profitable if you get the business on the right track from the start.  Too often we see those with “limited funds” (we all have limited funds -even multinationals have limited funds) choosing to forgo having the deals structured by a professional and just downloading a “partnership” agreement off the internet.  Do not be what my father likes to call President Obama – a knucklehead.  I have learned from my 13 years working in Korea (Can’t believe I have been here for 13 years), that this choice, normally, ends in either a failed business or a person contacting me with a case that, now, requires our litigation services.   I even saw cases end up in the prosecutor’s office.  The amount of money that it costs to have a professional draft these agreements, must, be considered part of the cost of

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The Korean War in Full Tom Coyner Color

There has been a great deal of activity commemorating the 60th anniversary of the Korean War armistice, but there has been little review of the events that made up the second half of that war. One may recall the basics: war begins in June 1950, UN responds in July, fighting around the Pusan Perimeter until August, Incheon landing and retaking of Seoul in September, UN forces capture North Korea, Chinese forces push back UN forces from October through December and fighting occurs around the 38th parallel during the first half of 1951. Then details seem to disappear during the two-year stalemate from July 1951, followed by the armistice negotiations with continued fighting until July 1953. In other words, after the Allied Forces retook Seoul a second time in March 1951, there is little mention, other than the casualties and a few battles. So, what really happened during those ensuing two

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Korean Invention Promotion Act: Employee Inventions in Korea

 The Korean Investment Promotion Act (“IPA”) was amended in June of 2013.  The amendments will come into force at the end of January of 2014.  Major Amendments to Korean IPA 1.  Employers will no longer obtain, automatically, a non-exclusive royalty-free license to all inventions by employees.  Employers will, now, have to implement company policies and/or include in employment contracts provisions to grant rights to inventions to employers.  The amendment will not apply to employers deemed by the Act on Small to Medium Enterprises to be SMEs. 2.  Employers will have an easier time establishing that “reasonable” compensation was paid in exchange for an assignment of inventions under the invention compensation policies of the employer.  The amendment, however, maintains the, present, uncertainty by still maintaining abstract guidelines, partially, based on future unknown profits that are, only, realized often years after assignment of the invention. 3.  Employers are required to establish an

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Criminal Convictions Finally Leading to Prison Sentences for Chaebol Leaders

Chey Jae-Won, younger brother of Chey Tae-Won (the former chairman of SK Group that was convicted of embezzling USD 43 million and sentenced to four years in prison earlier this year) just had his acquittal overturned last week by the Seoul High Court.  Jae-Won had, until now, managed to avoid experiencing the same fate as his older brother by convincing the Court that he had little to do with his brother’s fraudulent conversion of SK Group’s assets.  Now, Jae-Won is looking at a 3 1/2 year prison sentence that almost matches his older brother’s 4. Jae-Won’s conviction comes just a week after Koo Cha-Won (former chairman of LIG Group) and his oldest son were themselves slapped with three-year prison sentences for issuing USD 198 million of fraudulent company bonds. It has been a common complaint amongst many Koreans that chaebol leadership is never held to account in the court system. 

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Stock Options in Closed Korean Corporations

For stock options in Korea to be exercisable, thus valid options, the option must be approved, in most cases, at a general shareholders meeting of the Korean company.  If approval of the shareholders is obtained the articles of incorporation of the Korean company should, inter alia, note: An intention that a stock option may be granted in specified cases;  The number of shares to be issued or transferred in the case of exercising the stock option;  Qualifications of a person to whom a stock option is to be granted; Exercising period of the stock option; and  An intention that the granting of the stock option may be revoked by a resolution of the board of directors in specified cases. Korea Commercial Act art. 340-3(3)1.  Additionally, the company granting the options should execute an agreement with the individual granting the options and the stock option should, only, be given to authorized

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Korea Legal News for the Week of September 1, 2013

This Week’s Korean Legal News Reported by Media Park calls for closer macroeconomic coordination during G20 summit Chun Doo-hwan’s family inching closer to paying fine Park invites Italian firms to Gaeseong Prosecution chief denies news report on extramarital child Gov’t to inspect KORAIL Hyosung chairman Cho under tax probe Seoul, Beijing agree on basic guidelines for FTA negotiations Coffee shops add to Pyongyang’s dolce vita Seoul to issue W200 bil. childcare bonds S. Korea places import ban on all fisheries products from Japan’s Fukushima region Most Recent Posts from The Korean Law Blog Renewal Rights/Terms for Commerical Leases in Korea Under Amended Commercial Building Lease Protection Act of Korea  South Korea Begins 7th Round of Negotiations with China on Free Trade Agreement Proposed Amendment to Real State Development Business Act of Korea: Rating of Real Estate Development Projects Korean Visa Rules Still not Strict Enough for Some in the Korean

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Korea Legal News for the Week of August 25, 2013

This Week’s Korean Legal News Reported by Media Spy agency seeks arrest warrant against leftist lawmaker  N.Korea fires hawkish army chief  Seoul rejects ILO’s call for gov’t union  Senior tax officials banned from dining, golfing with conglomerate executives  Korean, U.S. defense chiefs discuss troop control transfer  Ssangyong makes major comeback  Kia Motors union stages 2nd partial strike  Hyundai to Build Car Parts Plant in U.S.  Gov’t to cut home acquisition tax rate  Seoul call center staff go on strike  Most Recent Posts from The Korean Law Blog  Korea’s Low Birth Rate: Problem that May be Impossible to Fix Korea Companies Defendants in Anti-Dumping Lawsuits Second to Only China: Check the Verasity of Data Produced by Korean Companies More Damage from Militant Unions & Rising Labor Costs in Korea: GM to Reduce Production in Korea Hyundai Motors on the Fast Track to a 45,000 Employee Strike Business Opportunities in Korea Getting

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Korea’s Low Birth Rate: Problem that May be Impossible to Fix

South Koreans take pride in leading the world in many categories. But one distinction is vexing – the lowest birthrate of the world’s most developed economies. The economic and political ramifications are massive.  And yet one wonders if effective countermeasures are even possible. The International Herald Tribune, recently, ran a story about private and government initiatives to encourage marriages and thereby raise South Korea’s birthrate.  For the past three years, for example, South Korea’s Ministry of Health and Welfare has promoted dating parties for its employees with counterparts from corporations. Other corporations have responded favorably to invitations from various government organizations to organize similar events.  Meanwhile, “no internal dating” corporate rules are disappearing as more and more business leaders take seriously birthrate-related problems, such as fewer future workers. While all of this may sound potentially positive, we find Koreans nonetheless being highly selective – no, extraordinarily picky – about whom

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Korea Legal News for the Week of June 9, 2013

This Week’s Korean Legal News Reported by Media S. Korea turns up the heat as foreign automakers make inroads S.Korea’s Samsung Heavy wins $1.3 bln order from Statoil S.Korea shippers join overseas rivals in shunning Iran business GM mulls moving Opel Mokka from Korea to Spain – report S.Korea opens $20 bln credit line for Mexico infrastructure S. Korea to discuss with Myanmar on inking investment guarantee pact South Korean women struggle in workforce Seoul to become bridge between U.S., China through FTAs Korea immune from U.S. military budget cuts: Pentagon official U.S. lawmakers renew call for putting N. Korea on terror list Most Recent Posts from The Korean Law Blog Definition of Copyright in Korea: Ideas vs. Expressions Definition of “Author” under Korean Copyright Act: Entertainment Law Cases in Korea Korea Enforcing Laws: Seoul Police Arrests Union Leader Legal/Compliance Checklist for your Korean Company: Top 7 Things to Do

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Private Detectives, Tattoo Artistists and Chiropractors in Korea Will Become Legal Professions?

It is illegal to be a private investigator, tattoo artist or chiropractor in Korea.  Of course, Korea has private investigators, tattoo artists and chiropractors.  Thus, those practicing these occupations in Korea face criminal prosecutions and fines. Additionally, the clients of those practicing these occupations are not safeguarded by the typical administrative agency regulations that serve to protect these individuals.  Some issues have occurred with regard to private investigators.  Some have utilized tactics that many consider less than ethical.  These criticisms may be lessened with the regulation of the profession.  I believe in the near future that tattoo artists and private investigators will become legal occupations, but I believe you will see a vigorous fight from massage therapists (anma- blind practitioners), pharmacists and doctors towards legislation of the chiropractic profession.   Some lawyers are against the private investigator profession, but in my own straw pole I found no Korean attorney that

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Apple Infringed Samsung Patents According to U.S. ITC: Standard Essential Patents

The United States’ International Trade Commission has overturned ITC Judge James Gildea’s September ruling that Apple did not violate Samsung’s patents alleged to be utilized in AT&T models of the iPhone 4, iPhone 3GS, iPad 3G and iPad 2 3G. President Obama has 60 days to review the order that has placed a partial ban on the imports of older versions of Apple IPhone and IPad products.   The ban relates to the use of Apple of “standard essential patents,” specifically the 3G wireless technology to transmit multiple services simultaneously that is owned by Korea’s Samsung.  Three related claims by Samsung were dismissed by the ITC. The majority of scholars and most U.S. government agencies believe that the damage for violation of these type “patents” should be low-cost licenses – not a ban on imports.  What do you think?  Other articles that may be of interest: Patent Bullies vs. Samsung

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Korean Corporate Governance Reported as One of the Worst by an Economist

What is the cause of the Korean discount? An economist article hits the nail right on the head. So what is the source of the “Korea discount”, which means that the KOSPI has a forward price-to-earnings ratio of under ten, below most other Asian stockmarkets (see chart)? There are a few possibilities. The national economic model is still built on exports, often in highly cyclical industries such as shipbuilding. The capital structure of South Korean firms has historically been debt-heavy.In this section But the prime cause of the discount is more likely to be poor corporate governance at the family-run chaebol conglomerates that dominate the economy. Nefarious schemes to pass on control to sons, avoid taxes and exploit company assets for the benefit of family members are widely discussed in private. They are also lambasted abroad: a 2010 survey by CLSA, a broker, placed the country third-from-bottom in Asia on

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Personal Data Protection in Korea under the Korean Information and Communications Network Act

Under the Korean Act on the Promotion of Information and Communications Network Utilization and Information Protection, Etc. (“ICNT”) a Government Notice, that entered into force last month, mandates all the major information services providers and data centers to become Information Security Management Systems certified. The Notice was a reaction to security breaches that may have revealed confidential information of users of various websites.  The Notice requires all press agencies, on-line shopping malls,  web portals and the like with revenue of over KRW 10 million or over 1 million users to become certified or face shutdown and a KRW 10 million fine. Those required to comply with the notify must be certified by the end of this year.   We predict that it may take up to four months for a site to be certified compliant according to a consultant we work with.  The new law may be welcomed by foreign and

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Pharmaceutical Companies in Korea: Criminal Sanctions and Vicarious Liability

Early this year, the Seoul Central District Prosecutors office charged a mega Korean pharmaceutical company and a dozen of its employees with providing rebates in the amount of approximately KRW 4.7billion to hospitals.  Dozens of doctors have, also, been subpoenaed for accepting rebates through agents.  Revisions in Korean Medical Services Act, Korean Pharmaceutical Act, and the the Medical Device Act provide criminal punishment for the provider and, also, receiver of rebates. Late last year, a similar scandal hit medical device companies. The most important issue for my foreign readers is that it is no longer true that Korea does not have vicarious liability.  The vast majority of scholars, in Korea, believe that a corporation may not be held criminally liable as a principle of a crime.  The Supreme Court and Constitutional Court of Korea have agreed with this notion.   However, today, many laws contain vicarious liability clauses.  The Constitutional Court

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Korean Legal News for the Week of January 27, 2013

This Week’s Legal News Reported by Media Korea tycoon sentenced for embezzling more than $40 million Korea becomes the red flag for Asia’s currency war Korea court rules Samsung chairman doesn’t have to share inheritance with older brother Korea to welcome back 5,000 Vietnamese workers Korea warns North against nuclear test Apple loses appeals bid in Samsung patent battle North Korea refuses to pay Polish builders Korea 4th-largest source for adoptees in US Sale of Korean relic taken in wartime leads to arrest Park, Harper agree to push Korea-Canada FTA Most Recent Posts from The Korean Law Blog Protecting Trade Secrets in Korea: Top 5 Things to Know Before Subjecting your Business Secrets to the Korean Market Korea’s President Lee to Pardon Cronies and “Too Big to Fail’ Companies Sad News for a Samsung Worker: Chemical Leak at Hwaseong Plant Inside Korea’s Two-Tiered Economy by Tom Coyner Sean Hayes in the

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