SOUTH KOREA Law and Practice Contributed by: Dongwook Kang, Chris Kim, Seung-Wan Chae and Jongwoo Kim, Bae, Kim & Lee LLC
Regulatory Reporting Requirements – Institutional Private Funds An IPF manager must file a report with the FSS regard - ing each IPF it manages, on an annual basis where the assets under management (AUM) of the fund are less than KRW10 billion, or on a semi-annual basis when the AUM of the fund is KRW10 billion or more, including the following information: • the current status of transactions of derivative products; • the current status of guarantees and the provision of fund assets as collateral; • the current status of borrowings; • the current status of the fund assets; and • the current status of other transactions having the leverage effect. In addition, if any of the following events occurs in relation to an IPF, its manager must report the event to the FSS within three business days: • the GPF’s leverage ratio surpasses 400 per cent; • the GPF holds a non-performing asset; or • a decision on redemption (including deferral of redemption) is made regarding an open-ended fund. Finally, an IPF manager must file an amendment report within two weeks when there is a change in any item reported in the fund establishment report of an IPF it manages. Disclosures to Institutional Investors GPFs and IPFs offered solely to institutional investors are not subject to any mandatory disclosure require - ments to investors. However, private funds manag - ers customarily prepare and provide an investment proposal document for the prospective institutional investors, which normally includes information on the investment structure, strategies and risks, plus the
following requirements to be classified as a “qualify - ing fund”: • the AIF is a collective investment vehicle in accord - ance with the FSCMA; • the accounts are settled and the funds are distrib - uted once or more often on an annual basis; and • capital investment/entrustment and redemption is in cash. Taxation of a Trust There is no taxation at the trust level and taxable income is only recognised once the income is dis - tributed to the investors. Any income distributed by qualifying funds to individual investors is taxed as dividends, whereas income distribution by funds that do not meet the requirements of a qualifying fund is taxed according to the nature of that income (ie, inter - est, dividends, capital gains or business profits). When the income is distributed to corporate investors, the distribution constitutes taxable income for a given tax - able year and is subject to corporate income tax at the corporate investor level. As such, the tax treatment of the distribution does not differ whether or not the fund is a qualifying fund. Taxation of Company-Type Funds At the fund level, company-type funds (such as invest - ment companies and investment limited liability com - panies under the FSCMA) are, in principle, subject to corporate income tax on investment profits from investment operations. However, if 90% or more of the distributable income is paid out as dividends, this amount is deducted from the taxable income, which enables the fund to avoid double taxation at the fund level. After taxes are paid at the corporate level, net profits are distributed to each investor in the form of dividend income and taxed again at the investor level. Taxation of IPFs IPFs may elect to be treated as pass-through entities for tax purposes so that income tax is not incurred at the IPF level and each partner’s income from the IPF will be subject to corporate income tax or individual income tax. If the IPF does not make such election, the fund itself, as opposed to the investors, is liable to taxes at applicable corporate income tax rates.
track record of the manager. 2.4 Tax Regime for Funds
Taxation of AIFs varies depending upon the type of AIF. In addition, treatment under the relevant tax law may vary depending on whether the AIF meets the
290 CHAMBERS.COM
Powered by FlippingBook