Advising under the Foreign Exchange Transactions Act on holding Korean unlisted shares after emigrating and transferring them to a U.S. company

The question in this matter was whether an individual holding shares in a Korean unlisted company becomes subject to a separate reporting obligation for those existing shares when the individual stays abroad for a long period and becomes a nonresident under the Foreign Exchange Transactions Act.

We also reviewed the reporting obligations under the Foreign Exchange Transactions Act and the Foreign Investment Promotion Act if a shareholder who had become a nonresident gifted the Korean unlisted shares to a U.S. LLC in which the shareholder held an interest.

The main issue was whether continuing to hold Korean unlisted shares, lawfully acquired while a resident, after becoming a nonresident constituted a reportable capital transaction under the Foreign Exchange Transactions Act.

Further issues were the reporting obligation for a transfer without consideration of Korean unlisted shares by a nonresident individual to a U.S. LLC, and whether a foreign investment report would also be required.

We analyzed the definition of a capital transaction under the Foreign Exchange Transactions Act and the reporting provisions on the acquisition of securities in the Foreign Exchange Transaction Regulations, distinguishing the continued holding of existing shares from a new acquisition of shares.

In particular, we examined whether a change in residency status resulting from a stay abroad itself constituted a new acquisition of securities, and analyzed the reporting provisions and exemption requirements that apply to transfers of Korean won-denominated securities between nonresidents.

We also reviewed whether the acquisition of Korean unlisted shares by a U.S. LLC would be subject to a foreign investment report under the Foreign Investment Promotion Act.

We concluded that a holder's change to nonresident status under the Foreign Exchange Transactions Act does not, by itself, trigger a separate reporting obligation for Korean unlisted shares already acquired.

On the other hand, we advised that a gift of those shares by the nonresident individual to a U.S. LLC would require a separate foreign exchange report, and that an additional reporting obligation could arise if the statutory requirements for foreign investment were met.