Where is the movement of assets of dual residents blocked? What is the conflict between Korea and the US standards and what is the response strategy?

-Son Dong-hoo Law Firm (Limited) Daeryun American Lawyer's Legal Column

As exchange rate volatility and global uncertainty continue, the number of cases of transferring or dispersing assets overseas is increasing. In particular, as the number of cases of managing residence and assets together while traveling between Korea and the United States increases, there are many cases where unexpected variables are encountered and difficulties are expressed. The success or failure of asset transfer depends on the ‘process’ of moving it rather than the asset itself. This is why it is most important to check the risks of each process in advance.

The first thing to check when transferring assets of a dual resident is 'legal status'. While Korean tax law considers individuals who have an address in the country or resided in the country for more than 183 days as residents, the United States considers not only citizens or permanent residents, but also those who meet the Substantial Presence Test as residents. In this way, if the standards of the two countries conflict, a person may be classified as a dual resident, and a complicated situation arises in which the country of final residence must be determined according to the tie-breaker rule of the Korea-US tax treaty.

In this case, even if the asset is the same, the scope of taxation and reporting obligations vary depending on which country the person is recognized as a resident of. There are many cases where a single asset is evaluated by different standards in Korea and the United States due to the complex factors such as the family's residence, location of assets, and center of economic activity.

Along with this, an important variable is the ‘timing of asset disposal’. Depending on when you sell your Korean assets before or after moving to the U.S., tax consequences can vary greatly. If a disposition is made after a change in resident status, the tax burden may increase larger than expected as the standards of both countries are applied simultaneously. In particular, if you sell Korean assets as a U.S. resident, the existing tax exemption for one home per household may be limited, which may lead to a substantial tax burden.

Restrictions in the physical ‘procedure steps’ must also be taken into account. For overseas residents, it is not easy to access the domestic administrative system, so there are many cases where the process is delayed from the initial stage due to restrictions on mobile phone authentication and problems with submitting original documents. However, these administrative restrictions can be largely resolved by representing the case through a lawyer. This is because business can be carried out without physical presence through document submission based on a power of attorney, real estate registration, and financial procedures.

However, what we need to prepare for more fundamentally than these superficial administrative procedures is the gradually strengthening ‘global regulatory risk.’ Recently, as both Korea and the United States have strengthened management standards for asset holding and movement, 'transparent reporting' in the process, beyond simply moving assets, has emerged as a key issue. Typically, in the United States, Foreign Financial Account Reporting (FBAR) is applied. Reporting obligations arise when the total balance of overseas financial accounts exceeds $10,000, and failure to comply can result in significant sanctions. In Korea, there is also a trend to expand the scope of management beyond simple accounts to include trust structures, such as the introduction of the obligation to report overseas trust assets.

Ultimately, the core of the response strategy lies in operating an integrated risk management system based on 'cross-border capabilities' that penetrate domestically and internationally. This is because asset transfer does not end with domestic disposal, but is followed like a shadow by subsequent procedures such as tax reporting in the United States (FATCA) and explanation of foreign exchange transactions. In an environment where one asset is judged simultaneously in the legal systems of two countries, domestic practice and overseas local response must be organically connected without being segmented. Therefore, the professional capabilities of a law firm that can comprehensively carry out everything from administrative representation in Korea to local legal response in the United States within one fence is now a necessity, not an option. In an asset management environment where borders between borders have disappeared, preemptive response through this cross-border infrastructure is the only way to fully preserve asset value.
 

Reporter Lee Dong-oh (canon35@mt.co.kr)

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