Aug 24, 2012

Bankruptcy in Korea: Winding Up your Company in Korea

Any business in Korea that are registered at a corporation must wind-up their company to legally close their business.  Many companies, however, choose to forgo this step thinking that no repercussions will be felt.  This belief is far from the reality.  I know a pending case that has lead to prosecutions, a lawsuit of a related company and a tax audit of an individual shareholder.

The following is the procedure to close a company in Korea.  Please note that this is not intended as an exhaustive explanation of the procedure.

Step 1
First, execute a special resolution to dissolve the Korea-based company at a general shareholder meeting.  The special resolution, in most cases, must be adopted with an affirmative vote of 2/3 of the shareholders present with 1/3 of the shareholders in attendance.

Step 2
Then, unless the articles of incorporation of the Korean company notes a different procedure, the directors may act as the liquidators.  However, in most cases it is more efficient to elect another liquidator at the aforementioned general shareholder meeting.  If you are unable to find an adequate liquidator, the court will appoint one. 

Step 3
Within two weeks from the date of the aforementioned general shareholder meeting, the Korean company should register with the court a motion to dissolve the company.  The company after filing is treated similarly to a company that is in U.S. Chapter 11 bankruptcy protection.  The company must file the motion at the court that has jurisdiction over the locale of the primary place of business or registered address of the company. 

Step 4
The Korean court will, then, request the liquidator to file a brief to the court explaining the reason for the company dissolution.  The liquidator will be required to consult and receive approval of the company shareholders prior to filing this brief.  The brief will need to include, at a minimum, a list of assets, debts and a balance sheet.  The liquidator will, also,  commence the closing of accounts and the paying off of creditors.   The liquidator should file the brief to the court within 14 days of his/her appointment as a liquidator.  The liquidator should, also, publish in a daily newspaper two times a notice of dissolution within two months of his/her appointment as a liquidator.   The notice should contain the contact details of the liquidator and request that all creditors contact the liquidator in order for the creditor to be placed on the list of creditors.

Step 5
The liquidator, at least two months after the second publication, will, then, settle all debts with the creditors up to the ability of the company to settle the debts.  If the liquidator is unable to settle the debts, the court will declare that the company bankrupt.  The priority, settlement and bankruptcy procedures shall be addressed in a separate post.  Upon completion of Step 5 the liquidator shall compile the closing report.  The report should be approved by the shareholders.  The liquidator should file the report to the Korean court within two weeks of obtaining approval.

Step 6
The liquidator is, then, required to file documents to the National Tax Services.  A separate post will detail these requirements.

This procedure is typically done with the assistance of a law firm.  Please hire, only, an experienced law firm in Korea or you will produce more grey hair.
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SeanHayes@ipglegal.com
IPG is engaged in projects for companies and entrepreneurs doing business in Bangladesh, Cambodia, China, Korea, Laos, Myanmar, the Philippines, Vietnam and the U.S.
www.ipglegal.com

Aug 22, 2012

National Trade Commission of Korea on Korea-EU FTA Damage to Korean Companies

The National Trade Commission of Korea has awarded damages to a Korean pork processor for injury it has sustained as the result of the Korea-EU FTA.  The pork processor will, now, be able to receive Korea government support.  Hopefully, the support will be used to lower the price of Korean pork and not just pad the coffers of the processor.

Prior to the implementation of the Korea-EU FTA, Korea pork has a near 85% market share.  Today, the share stands at around 70% and is expected to further decrease.  Three other cases have been filed to the National Trade Commission.
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SeanHayes@ipglegal.com IPG is engaged in projects for companies and entrepreneurs doing business in Bangladesh, Cambodia, China, Korea, Laos, Myanmar, the Philippines, Vietnam and the U.S. www.ipglegal.com

Operating in Compliance with U.S. and British Law in South Korea: Guardian

The Guardian has posted an interesting report entitled Operating Responsibly in Emerging Markets: South Korea.  The report, rightfully, notes that corruption is still a major issue for companies doing business in Korea.  The report, emphatically notes that its:  "imperative for companies operating in South Korea – particularly for those with a presence in the UK – to ensure that there are strong anti-bribery and corruption policies and procedures in place."

The report notes in part that:
Corruption continues to be a key challenge for a business seeking to operate responsibly in South Korea. Ranked by Transparency International in 2011 as the 43rd most corrupt country out of 182, recent reports have questioned the effectiveness of anti-corruption law in South Korea and its enforcement. According to a report from Herbert Smith on anti-corruption in Asia, South Korea's Act on Preventing Bribery of Foreign Officials in International Business Transaction has only led to nine convictions in 13 years. Few Korean companies are revealing data on political 'donations' (comparable to facilitation payments in the West) in their CR reports.
However, there is evidence that combating corruption is moving up the South Korean agenda. Just this week, the country's anti-corruption agency announced that it will seek to introduce a law that would mean government officials caught accepting more than 1 million won ($883) worth of bribes or entertainment could face punishment of up to three years in prison even without evidence of influence peddling. Disgraced officials would also need to pay back five times the amount they received. In addition, lobbyists and civil servants will incur significant fines if they are found to have sought illicit favours from public officials, whether or not any money was involved. It is therefore imperative for companies operating in South Korea – particularly for those with a presence in the UK – to ensure that there are strong anti-bribery and corruption policies and procedures in place.
Other articles that may be of interest:

The full report may be found at: Operating Responsibly in Emerging Markets: South Korea Corporate Compliance.
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SeanHayes@ipglegal.com IPG is engaged in projects for companies and entrepreneurs doing business in Bangladesh, Cambodia, China, Korea, Laos, Myanmar, the Philippines, Vietnam and the U.S. www.ipglegal.com

Aug 21, 2012

Protecting Brands in Korea Getting Easier?

This week a Seoul Central District Court awarded damages to Chanel for defamation inflicted on Chanel by a room salon that was branded as Chanel Business Club.  The court noted that: "The defendant, by using Chanel’s image for his business which is commonly associated with a negative image, inflicted damage to the brand value of Chanel."  The defendant never responded to the suit.

A room salon is a type of bar where girls entertain men in private rooms by engaging in friendly banter.  Some of the clubs allow girls to leave the bar with the bar patrons.

This trend of allowing damage for damage to the business reputation is welcome, however, the damages awarded are, often, so trivial, that few brands are willing to file suit.  Chanel seems to want to, merely, warn others from using its brand in a nefarious manner.

The court awarded damages to Chanel in the amount of KRW 10mil (USD 8,900).
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SeanHayes@ipglegal.com IPG is engaged in projects for companies and entrepreneurs doing business in Bangladesh, Cambodia, China, Korea, Laos, Myanmar, the Philippines, Vietnam and the U.S. www.ipglegal.com

Aug 16, 2012

CEO/Chairman of Chaebols Serving Time in Jail in Korea?

Things may be changing in Korea. The Chairman of Hanwha Group was sentenced by the Seoul Western District Court, today, to a KRW 4 billion fine and four years in jail for misappropriating/embezzling Hanwha Group funds. Hanwha's Chairman Seung-youn Kim, a few years back, was convicted of beating a young man with a pipe and threatening the life of other individuals. The Korean Court System sentenced Kim to no time in jail for that offense and the president, eventually, pardoned Kim with a number of other presidents and chairmen of Korean conglomerates.

Is this a sign that things are changing in Korea? Will the Seoul High Court uphold the judgment? Will the President pardon Kim?

As we know, many chairman and presidents of companies have been convicted of embezzling company money and have received no time in jail. It will be interesting to see if this judgement will be upheld and if he and the other individuals being tried will receive jail sentences and will, actually, serve time in jail.
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SeanHayes@ipglegal.com IPG is engaged in projects for companies and entrepreneurs doing business in Bangladesh, Cambodia, China, Korea, Laos, Myanmar, the Philippines, Vietnam and the U.S. www.ipglegal.com

Aug 15, 2012

Keeping your Job in China: New Laws Crackdown on Illegal Foreign Workers in China

China has passed a new law to take effect July 1, 2013. According to government officials, these rules are not new but simply codify current law enforcement practices. In summary, non-Chinese citizens who are found to be working in China without a work visa or residence permit will be fined and possibly deported. The employer will also face fines for having a foreigner working for them.

One large change is that the requirement for remuneration has been removed from the law, now focusing on whether the foreigner is “working.” The new law does not repeal theForeigners in China Provisions, which does retain the definition that working is social work for the benefit of labor remuneration. Calls to law enforcement and immigration ministries have provided no detail on what is considered “social work.” All departments have replied that they will determine each case on an individual basis. From our experience, working has meant receiving payment for goods or services from a Chinese company or individual. The new wording implies that simply being seen in an office on a computer will be enough for the police to question you although we won’t know until next year.

Worse, the new law now expressly authorizes deportation for foreigners for illegal work. In comparison, those who simply stay in China longer than their visa allows will be given a warning and on subsequent violations a fine of up to 10,000RMB. Severe cases, which are at the government official’s discretion to determine, can incur a 100,000RMB fine and detention for 15 days. Those who are “unsuitable” to remain will be given a deadline to leave, and will not be allowed to return for 1-5 years. In severe situations (again, at the discretion of the government office), the foreigner will be deported. After deportation, the foreigner will not be allowed to enter China again for 10 years. This is in addition to a fine on any company the foreigner worked with of 10,000RMB plus the confiscation of any income earned by the company from such work.

This new law will also likely make receiving a visa more difficult as well. The regulation states that a visa should not be issued to a person who is likely to engage in activities prohibited by their visa (link in Chinese). Thus, anyone entering China on an L visa (also known as a tourist visa) that has been renewed several times without leaving China for a significant amount of time will be suspect. The new law also forbids officials from stating the reason for denying a visa, leaving foreigners with little ability to appeal denials.

So what can a foreigner do to avoid the penalties and possible deportation? The best thing a foreigner can do is get an employment visa instead of the common tourist or business visa, especially if they are planning on staying long term in China. For those people who stay in China for business reasons, the best option is often to set up a company in China and work as the manager. While the initial investment to set up a company will vary depending on the industry, people who plan on staying in China for more than a year find the investment will pay for itself in peace of mind. This strategy has the added bonus of making sure Chinese partners can’t report you as working illegally in order to take over your business.

With experienced legal counsel, a foreigner can live and work in China without fear of Immigration for many years.
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SeanHayes@ipglegal.com
IPG is engaged in projects for companies and entrepreneurs doing business in Bangladesh, Cambodia, China, Korea, Laos, Myanmar, the Philippines, Vietnam and the U.S.
www.ipglegal.com

Union Relations Success in Korea: Congrats to GM Korea

Reuters reported that GM Korea and its union has likely come to a tentative wage concession agreement with the Korean union.  The agreement will be put to vote at a union meeting this week.  The deal is great news for GM Korea, the union and Korea.  Korean unions have a reputation for radicalism and violence, thus, making many potential investors choose other destinations without these same labor relation issues.  I have, personally, seen too many of my clients choose other destinations because of these issues.

GM Korea has, generally, successfully navigated these often murky waters, since its acquisition of Daewoo Motors.

The Reuters report notes that:
The agreement came after factory workers at GM Korea staged a series of partial strikes in July and August, and includes a basic salary increase of 80,564 Korean won ($71.23), a bonus of 5 million won and a one-off payment of 3 million won, among others. Regarding the most contentious issue of scrapping overnight work, the two sides agreed to test-run a new shift scheme in the first quarter of 2013 and to decide on the time frame for the new system in the second quarter of that year.
GM Korea is one of the U.S. automaker's key Asia production bases, producing a quarter of GM's Chevrolet cars sold globally, and 98 percent of Chevy cars sold in Europe.
The Reuters article may be found at: GM Korea, Union Reaches Tentative Wage Deal

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SeanHayes@ipglegal.com
IPG is engaged in projects for companies and entrepreneurs doing business in Bangladesh, Cambodia, China, Korea, Laos, Myanmar, the Philippines, Vietnam and the U.S.
www.ipglegal.com

Aug 14, 2012

U.S. Taxes for Americans Working and Living Abroad

TAXES.  Everyone wants to avoid them and only a few people really know how.  This goes double for US citizens who earn income in China.  This is because the US taxes foreign income as well as income earned within the States.  Even worse, the IRS requires any US person with a financial account overseas to register it with the treasury department, as long as such account has held over $10,000USD at some point during the year. This provision was meant to discourage the use of overseas tax shelters, but they equally apply to US people teaching English in China that have managed to save $10,000USD in their Bank of China account. And speaking from personal experience, the process is complicated because it involves both the IRS and the Treasury department.  Luckily, the filing can be done online, even if it is not particularly simple.

For those earning a salary in a foreign country, the most important exclusions to know about are foreign earned income and foreign housing exclusions.  For 2012, the foreign earned income exclusion is up to $95,100 and the foreign housing exclusion/deduction is 30% of the foreign earned income exclusion (but varies by location).  The housing exclusion applies to income received from an employer, and the deduction applies to self-employment income. The details for calculating the foreign housing exclusion/deduction are maddeningly complicated and beyond the scope of this article.  The foreign earned income exclusion is more straightforward as it directly excludes the income from taxes.   Most important to these exclusions is how to qualify for them.

First, you must be a resident alien or citizen of the United States.  Resident aliens are those who have Green Cards or who have been in the United States for a total of 183 days over the past 3 years, only counting 1/3 of days in the 2nd year and 1/6 of the days in the least recent year. (That is the easy math. Imagine what the housing exclusion entails.)

Second, you must have a foreign country as your tax home.  This means you have employment in that country and it is where you permanently or temporarily work.  Business trips don’t count, but moving there to fulfill employment or contract work likely would. As a general rule, if you expect to be working in the country for over a year, it is your tax home.

Third, you must be in a foreign country for a significant time, determined by the bona fide resident test or the physical presence test.  Bona fide residence means you are living in a foreign country as a resident would for a full tax year. Each case is evaluated individually, but those who rent an apartment in a foreign country, live there 7 days a week, and only leave the foreign country for business and vacation with a clear intention to return to the foreign country, are almost certainly residents. The physical presence test is for those who live a long time in a foreign country but not the January-December tax year.  If you spend 330 days in a foreign country over a consecutive 12 month period, you meet the physical presence test.  Unlike the bona fide resident test, you could live out of your suitcase, travel through Europe to multiple countries for any reason, and as long as you spent 330 days outside the US you can meet the test.

Finally, you must have foreign earned income. Usually, foreign earned income is any income earned when you have met the tax home and bona fide residence/physical presence test. Foreign income also includes housing and meals provided by the employer, allowances such as cost of living or education reimbursement, and commissions earned. Money from the US government or a pension does not count as foreign earned income.
If all four factors are met, then you can use the exclusions and can avoid some or all US taxes on your foreign income.  Of course, if you have set up a company in a foreign country, the process is very different.

Posted by Frank Caruso.  Chair, China Practice Team for IPG.
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SeanHayes@ipglegal.com
 IPG is engaged in projects for companies and entrepreneurs doing business in Bangladesh, Cambodia, China, Korea, Laos, Myanmar, the Philippines, Vietnam and the U.S.
www.ipglegal.com

Aug 13, 2012

Another Reason for Establishing a Company in Hong Kong for Entering the Chinese Market

As those of you who have read my blog over the past 6 or 7 years (I can’t even remember how long I have been writing it) you know that I have always been a big fan of Hong Kong. Ever since 1989 when I sailed into Hong Kong on U.S. Navy ship as a young U.S. Marine Officer I have been enthralled with the city.

While the dramatic beauty of Central and the sky scrapers overlooking Victoria Harbor against a backdrop of lush green mountains, the iconic Star Ferry and other attractions make it my favorite city in the world, it is the business climate and rule of law that make it the best place in the world to do business.

I have written about this in Hong Kong and the Rule of Law and Hong Kong Phooey and numerous other articles on the topic. I also advise my clients from all over the world on using Hong Kong as the only legal corporate structural platform for their entry into China and South East Asia. Well, we now have another reason to support Hong Kong as a market entry, financial and administrative center for China operations – regardless of the scope of business.

China’s State Administration of Taxation just announced a change in the rules governing the withholding tax that foreign investors pay on dividends repatriated from their share of investments in Chinese companies. Companies and shareholders based in countries outside Mainland China (such as the United Kingdom, Hong Kong and Singapore) that have double taxation agreements (DTAs) with China will only have to pay 5% in withholding tax on the dividends they receive from Chinese companies, instead of the usual 10% payable by companies and shareholders resident in countries without DTAs (U.S. and many EU companies).

Although the reduced rate has been available for several years Hong Kong holding companies did not meet the ‘substantial business activity’ requirement which has in effect been removed. So, now there is even more reason to use Hong Kong as the structural platform for you operations in China and beyond.

Posted by Frank Caruso, Chair China Practice Team at IPG.
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SeanHayes@ipglegal.com IPG is engaged in projects for companies and entrepreneurs doing business in Bangladesh, Cambodia, China, Korea, Laos, Myanmar, the Philippines, Vietnam and the U.S. www.ipglegal.com

How Sustainable is the Korea-Pop Phenomenon? Korea Entertainment Law

Among the many topics that have surfaced during the past two months as I traveled about Ireland and the US West Coast, I settled on the below, current report as I have been thinking for months of writing a column on just what the Korea Wave or Hallyu may actually be or not be.

Samsung Economic Research Institute (SERI) does a decent job in describing what are the results of Hallyu around the world.  The analyst provides a decent account of how these boy and girl acts succeed, but there is no real attempt to explain why Korean pop (K-Pop) has been so popular or at least appear to be so successful.  My initial impressions from many observations and discussions have provided me with some very tentative conclusions.

The most obvious and least surprising success factor for any kind of adolescent or young adult phenomenon is sex appeal or the thinly veiled offering of being seductively attractive to the other young people.  As I have stated in prior KER messages, Hallyu is a thinly disguised rip off in many cases of Japanese boy and girl bands but with upgraded versions of being what we once called “prick tease” sexy rather than simply cute, as in the case of the shy Japanese.

Of course, this does not address why Korean cinema have done so well, but there are some major common denominators.   Both the music groups and the cinema feature remarkably beautiful women and handsome men – many cosmetically enhanced by some of the world’s finest (i.e., Korean) cosmetic surgeons.  These entertainers literally embody what many other Asians wish all East Asians to appear like.  On top of that, many of the movies are well made. But even if the songs are not quite up there or the films less than what one may wish to see, the actors and signers look fabulous.  But what is not so clear is how genuinely popular is Hallyu in sustainable ways.

There have been some big flashes in the pan concerts and television appearances abroad, but I have yet to see major trends outside of the Korean diaspora centers.  Many first, second and third generation Koreans regularly check out Hallyu YouTube videos – and so do their non-Korean ethnic friends. There used to be a saying in Hawaii that one would never see a group of Koreans, but always a Korean in every group.  As Koreans move out of their first generation overseas ghettos, they have become remarkably integrated.

According to my observations in LA’s Korea Town and my conversation with a son who lives there, many non-Koreans who are into Hallyu have or have had an ethnic Korean partner.  All of which brings me to the SERI analysis’ conclusion that implies one should not try to over leverage Hallyu in unnatural promotions, such as promotion of relatively stodgy traditional Korean culture, etc.  Hallyu is essentially about young people and older people reminiscing of what is was like to having once been young.

The challenge is where does Hallyu go from here? According to a long-term Japanese pop cultural observer who will soon be retiring as a university lecturer at a women’s university in Tokyo, when Hallyu first appeared, it really caught the Japanese young people off guard in a very positive way.  But after a couple of years, enthusiasm has begun to wane as both early and newest Hallyu groups stick to the tried-and-true success formulas with little, genuine innovation.   Meanwhile, Korean private and public sector marketers are feverishly promoting Hallyu – often without adequate appreciations of just why the trend has been successful and what challenges Hallyu faces in order for its industry to achieve lasting success.

For Hallyu to have real legs that can promote not only itself as well as other aspects of Korea into the future, Korean artists will need to be more creative than what they have so far exhibited.  While we may debate if that may be possible in corporate controlled entertainment anywhere, ultimately it will be up to Korean artists to act more like the Beatles and less like the Monkees if they are to make a lasting contribution to global pop culture.

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Lessons from K-pop’s Global Success
K-pop has entrenched itself as a bona fide phenomenon in Asia and is rapidly extending its reach to new markets. Companies in other industries can benefit from its success by deploying K-pop based products and tourism packages, using K-pop stars as spokesmen, and piggybacking on K-pop’s transnational appeal. Companies can also learn from K-pop’s system of rigorous training and long-term planning.  Report may be found at: Samsung Economic Research Institute (SEO Min-Soo).
You will need to login to SERI Quarterly to see the report.

Post by Tom Coyner.  Senior Commercial Adviser for IPG.
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IPG has one of the leading Entertainment Law Practices in Asia.  The team represents, numerous, Korean and international entertainment companies, entertainers, sports stars and artists. 

 IPG is engaged in projects for companies and entrepreneurs doing business in Bangladesh, Cambodia, China, Korea, Laos, Myanmar, the Philippines, Vietnam and the U.S.

SeanHayes@ipglegal.com