Compliance check: South Korea: New filing obligation for stock-based compensation

The Income Tax Act and its Enforcement Decree were recently revised to introduce a requirement for local subsidiaries or branches of foreign companies in South Korea to file information concerning stock-based compensation issued to their executives and employees by the foreign companies. This requirement became effective on 1 January 2024 to stock-based compensation received or exercised on or after 1 January 2024.

Notification Obligation

From 1 January 2024, where executives or employees of a local subsidiary or branch of a foreign company receive or exercise stock-based compensation (eg stocks, stock options or bonuses given in money equivalent to the share value) granted by the foreign parent company, the local subsidiary or branch (as the case may be) must submit the following information to the South Korean tax authority:

• details of the grant, exercise and payment schedules of the stock-based compensation;
• profits arising from such exercise and payment; and
• personal information of the relevant executive or employee.

The above information must be submitted by 10 March of the year following the tax year in which the exercise or payment of the stock-based compensation occurs.

For executives or employees of a local subsidiary, a foreign parent company refers to a foreign company that owns, directly or indirectly, at least 50% of the shares of the local subsidiary. For executives or employees of a branch of a foreign company, a foreign parent company refers to the headquarter or branch of a foreign company, or a foreign company that directly or indirectly owns at least 50% of the stock of another foreign company.

Key Takeaway

Employers who have issued or are intending to issue stock-based compensation must ensure they comply with the filing obligation if it is granted by a foreign parent company.