HSBC Treasury Management Profiles 2018 -

Current section, Introduction

Introduction

South Korea is Asia’s fourth-largest economy (behind China, Japan and India) having achieved consistent economic expansion over the past 40 years. A hi-tech, export-driven industrialised economy (exports of goods and services accounted for 42 per cent of GDP in 2016), the country’s economic growth has been steady in recent years, recording 2.8 per cent growth in 2015 and 2016. In July 2017, the government adjusted its growth forecast for 2017 to 3 per cent (from an earlier forecast of 2.6 per cent), citing improving demand for South Korean products (the government forecasts exports increasing 10.2 per cent in 2017) and increased fiscal spending of KRW11 trillion. The government hopes that greater fiscal spending will stimulate household spending as well as increase economic growth. In November 2017, the central bank lifted interest rates by 25bps to 1.5 per cent for the first time in six years. Interest rates had been at the record low of 1.25 per cent since June 2016. In 2018, the government plans to increase spending by 7.1 per cent to KRW429 trillion. It is also proposing that the nation’s top 129 companies pay 25 per cent corporate income tax from 2018 (up from 22 per cent). The revenue raised will further help address the country’s income inequality and increase investment in job creation.

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Legal and regulatory

  • Foreign exchange accounts can be held by residents both domestically and abroad. Resident domestic currency (KRW) accounts are not convertible into foreign currency without justifiable reason
  • Non-resident bank accounts are permitted in both foreign and domestic currency. Non-resident domestic currency accounts are freely convertible into foreign currency
  • Depending upon the details of cross-border money transfers and/or transactions between residents and non-residents, a report to a foreign exchange bank, the central bank or the Ministry of Strategy and Finance may be required

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Taxation

  • Resident companies are taxed on their worldwide income
  • Non-resident companies are taxed on UK-sourced income only
  • Non-resident companies with a permanent establishment (PE) are required to file a corporate tax return disclosing the income attributable to the PE. Non-resident companies without a PE are taxed on South Korean-sourced income only
  • South Korea has progressive tax rates. Taxable income below KRW200 million is taxed at 10 per cent; KRW200 million to KRW20 billion is taxed at 20 per cent; and income above KRW20 billion is taxed at 22 per cent

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Payment instruments and systems

  • Cash is an important payment medium in South Korea, particularly for low-value retail transactions; 20 per cent of all payments are made using cash. Cheques remain popular, but their use is in decline due to a preference for electronic credit transfers for both high-value corporate and low-value retail payment transactions. Payment card use, particularly of credit cards, is widespread; credit cards accounted for 44 per cent of the volume of all cashless payments in 2016. E-money schemes are hugely popular in South Korea
  • South Korea operates a number of national payment systems: BOK-Wire+, a real-time gross settlement system; the Cheque Clearing System; the Bank Giro System, IFTNET, for cashier’s cheques; HOFINET for mobile, internet and phone payments; CDNET for ATM payments; CMS for credit and debit transfers; BANKLINE for bank-initiated transfers; K-CASH; EFTPOS; and the B2C and B2B Electronic Commerce Payment systems

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Cash management

  • Notional pooling is not permitted in South Korea. Cash concentration is permitted between resident and non-resident companies. The KRW cannot be traded outside of South Korea
  • The KFTC operates the Extended Korea Payment Network which links domestic and overseas payment and settlement networks. The system enables domestic bank customers to use payment services in the USA, the Philippines, Malaysia, Vietnam and Thailand

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Electronic banking

  • Internet and mobile banking services are provided by all of the country’s banks for both corporate and retail purposes. There are more than 7.8 million registered business internet banking users and over 114 million individual internet banking users; 40.7 per cent of internet banking services are used for depositing, withdrawing or remitting money
  • Corporate users are limited to making a one-off transfer of KRW1 billion. Corporates have a daily limit of KRW5 billion

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To read the full report on South Korea and to discover more on these and other topics, including banking and trade, please click on the Download PDF option.

Sources:

  • World Bank
  • Ministry of Strategy and Finance
  • Bank of Korea

The materials contained on this page were assembled in May 2017 (unless otherwise dated).

 

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