After the notice was issued, it became quite common for Korean banks to reject funds wired from foreign brokerage accounts on the basis that these proceeds were obtained in violation of the Foreign Exchange Transaction Act. Korean employees who want to sell such shares are therefore required to engage a Korean broker and work with their foreign broker to transfer the shares to such broker. Although several Korean brokers have emerged who are able to assist and sell foreign-listed shares on foreign stock exchanges, the process remains, of course, cumbersome for employees to set up and can impact the timing of the sale of shares. Further, for stock options, it effectively has made a broker-assisted cashless exercise impossible because this typically requires the designated foreign broker to immediately sell shares at exercise.
Update
Accordingly, it is very welcome news that, on 29 December 2023, the Korean Financial Services Commission (FSC) issued an advance notice of legislative action which would allow domestic employees of multinational companies who have acquired shares under a stock-based compensation program to sell such shares without the involvement of a Korean broker and to deposit proceeds from the sale of shares into an account with an overseas financial institution. It is expected that the legislative action will go into effect in late February/early March 2024.
Next Steps
Until the legislative action takes effect, the domestic broker requirement introduced by the June 2023 notice remains in place. Thus, until then, Korean domestic employees will need to sell shares through a Korean broker and may not deposit proceeds from the sale of shares with an overseas financial institution.
For more details, please see the client alert issued by the Korean law firm Kim & Chang, which also includes an update on the new employer tax reporting obligations for stock-based compensation that came into effect on 1 January 2024.
