Liquidation procedures for foreign-invested companies in Korea
1. Overview
In order to liquidate a foreign-invested company in Korea, liquidation procedures stipulated under the Korean Commercial Law, applicable tax Laws, and the Foreign Exchange Transaction Regulations must be strictly followed. The liquidation procedures would generally take approximately 3 to 4 months, provided that there are no material issues during the course of receivable collection and realization of assets into cash. Set out below are the key procedures for the liquidation of a foreign-invested corporation.
2. Major Liquidation Procedures
(1) Shareholders’ (or Members’) resolution for dissolution
To place a foreign-invested company into liquidation, a shareholders’ (or members’) resolution for dissolution must first be adopted at a general meeting of shareholders (or members). Following the adoption of the dissolution resolution, a dissolution registration must be filed with the competent registry office within two weeks from the date of the resolution.
(2) Appointment of a liquidator and public notice to creditors
A foreign-invested company must appoint a liquidator after the resolution for dissolution has been adopted. Following the appointment of the liquidator, the foreign-invested company is then required to register the appointment of the liquidator with the relevant registry office and complete the court filing and registration procedures for the appointment of the liquidator.
Within 2 months of the appointment, the liquidator is required to designate a specific period that lasts no less than 2 months (“Covered Period”). During the Covered Period, the liquidator issues public notices to the creditors about their claims against the foreign-invested company and makes the creditors aware that if they fail to claim within the Covered Period, their claims against the company shall no longer be included in the liquidation. Meanwhile, any known creditors must be individually notified, and even in case such creditors do not make any claims within the Covered Period, their claims shall not be excluded from the liquidation.
(3) Filing the closure of business
A foreign-invested company must report its closure of business without delay upon the actual date of business closure and return the company’s business registration certificate to its jurisdictional district tax office.
(4) Collection of Receivables, Realization of Assets, and Settlement of Liabilities
During the Covered Period, the liquidator must collect the receivables and carry out the realization of the company’s assets. After the expiration of the Covered Period, the liquidator must settle the liabilities owed to the creditors who reported their claims within the period, as well as to creditors already known to the company.
(5) Tax compliance requirements for dissolution and liquidation
A foreign-invested company is required to fulfill the following tax compliance requirements in regards to the dissolution and liquidation.
| Category | Period | Deadline |
| Filing of VAT returns | From the beginning of the tax year in which the date of dissolution falls until the date of closure | Within 25 days from the end of the month in which the date of closure falls |
| Filing of Corporate Income Tax returns for each tax year | From the beginning of the tax year until the date of dissolution registration | Within 3 months from the end of the month to which the end of the tax year belongs. |
| From the day immediately following the date of dissolution registration until the date in which the liquidation value is finalized (*) | ||
| Filing of Corporate Income Tax on liquidation income | Corporate Income Tax is imposed on liquidation income determined on the date in which the liquidation value is finalized | Within 3 months from the end of the month in which the liquidation value is finalized. |
(*) In case that the end of a tax year falls between the day immediately following the date of dissolution registration and the date in which the liquidation value is finalized, the foreign-invested company is required to file tax returns for each of the following periods: (i) Period from the day immediately following the date of dissolution registration until the end of the tax year; and (ii) the period from the beginning of the following tax year until the date in which the liquidation value is finalized.
(6) The completion of liquidation and deregistration of the foreign-invested company
As soon as the foreign-invested company fulfills its financial obligations and finalizes the final liquidation value, the liquidator is required to obtain approval of the Statement of the Settlement of Accounts by submitting it to the shareholders’ (or members’) meeting. Once the approval is obtained, the foreign-invested company must register the completion of liquidation within 2 weeks from the date of approval with the relevant registry office having jurisdiction over the head office.
Once the liquidator proves that the liquidation is complete and all tax liabilities have been settled by submitting audit reports and tax clearance certificates to a designated foreign exchange bank, the foreign-invested company can distribute proceeds from residual assets to the foreign investor. As a last step, the foreign-invested company deregisters its foreign-invested company registration with the designated foreign exchange bank and returns the Certificate of Registration of a foreign-invested Company, and completes all requisite liquidation procedures in Korea.
3. Conclusion
In order to liquidate a foreign-invested company and remit the residual assets to overseas investors, it is essential to complete all liquidation procedures in strict compliance with the applicable laws and prescribed deadlines. Therefore, should the foreign-invested company decide to be liquidated in Korea, it is highly advisable to seek a legal and tax expert’s advice on the detailed liquidation procedures and other matters pertaining to the liquidation procedures.
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