SOUTH KOREA Trends and Developments Contributed by: Tom Kwon, Jung-Ho Ryu, Steve Kim and Philje Cho, Lee & Ko
protecting sensitive trade secrets. This becomes especially complex when requested materials are held by overseas affiliates. Because specific guidelines for “justifiable reasons” are still being developed, and the right for taxpayers to present their views to the com - mittee is not yet explicitly guaranteed, the risk of arbi - trary imposition remains a concern for multinational enterprises. How to prepare and respond To challenge the imposition of a fine, a taxpayer must file a written objection with the competent tax - ing authority. Upon the filing of such objection, the fine disposition is suspended, and the taxpayer is not required to pay the fine unless and until a court judgment becomes final. By contrast, to dispute an Enforcement Penalty, taxpayers must now file a for - mal administrative lawsuit, which generally requires paying the penalty upfront while the case is pending. This “pay first, litigate later” approach is much more demanding than the previous appeals process. Given this heightened procedural burden and cash- flow risk, businesses should proactively reassess their document retention and management protocols, and should develop a litigation-ready strategy in advance, including clear internal escalation procedures and robust privilege and confidentiality controls (particu - larly in light of the recent enactment of attorney-client privilege in Korea), in order to operate effectively in this stricter enforcement environment. New Reporting Obligations for Foreign Trusts Strengthening oversight of offshore assets The Korean tax authorities have introduced a new reporting system for Korean residents and domestic companies that establish or operate foreign trusts. The law took effect on 1 January 2025, but the first reporting deadline for these assets will fall in 2026. This measure follows international trends aimed at increasing transparency for offshore wealth. While previously difficult for authorities to track, information on foreign trusts must now be formally disclosed in order to ensure compliance with domestic tax laws. Determining the reporting duty The obligation to report typically falls on the settlor who establishes the trust. If a settlor maintains “sub -
stantive control” over the trust assets, they must file a report annually, even if the trust was established before 2025. Notably, individuals who established a foreign trust while being non-residents may still face reporting obligations if they later move to Korea and become residents. Substantive control may be identi - fied if the settlor retains the right to revoke the trust, the power to designate or change beneficiaries, or the right to receive residual assets upon termination. Key deadlines and valuation methods Taxpayers must submit a formal “Statement of Foreign Trust” by June 30th of the year following the end of the fiscal year. For individuals, the first reporting deadline under this new regime will be 30 June 2026. The report must include details of the parties involved and the fair market value of trust assets such as cash, listed shares and crypto-assets. Penalties for non-compliance Failure to submit the required statement or providing false information can lead to significant administrative penalties. These fines can reach up to 10% of the value of the trust assets, although they are currently capped at KRW100 million. In addition, authorities may request an explanation regarding the source of funds used to establish the trust within the past ten years. Expanded Scope of Korean-Source Other Income: Inclusion of Gains From Transactions at Below- Market Value Stronger taxation on transactions at below-market value Recent legislative changes have expanded the defi - nition of domestic source “Other Income” for foreign companies. Under the amendment to the Corporate Income Tax Law (CITL) passed on 23 December 2025, the difference between the purchase price and the fair market value is now explicitly categorised as tax - able income. This applies specifically to cases where assets located in Korea are acquired at a price at least 30% lower than their fair market value, as determined under CITL valuation rules. Addressing previous legal ambiguities Prior to this amendment, the relevant provision classi - fied only “income arising from the gift of assets located
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