Pay overseas sellers directly for imported goods if you wish to avoid reporting third-party payments.

 

On October 12, 2023, Seoul Customs issued guidance advising importers to pay overseas sellers directly for imported goods instead of utilizing agencies such as customs clearance or transportation agencies.

This is because, in accordance with Article 16 of the FOREIGN EXCHANGE TRANSACTIONS ACT (외국환거래법), if a resident pays money to a person who is not a party to the transaction in question, the payment must be reported in advance. In a standard buy & sell transaction, only the buyer and seller are recognized as parties to the transaction. Therefore, if you are contemplating paying a customs clearance agency for convenience, you should reconsider.

 

However, if the value of the imported goods doesn’t exceed USD 5,000, you can utilize the customs clearance agency to pay for the goods without reporting a third-party payment. This is because, in accordance with Article 5-10 (1) 1 of the  FOREIGN EXCHANGE TRANSACTIONS REGULATION (외국환거래규정), an amount of USD 5,000 or less may be paid to a 3rd party without reporting. Keep in mind that if you use installment payments, the total sum of the payments must not exceed USD 5,000.

 

Reporting a third-party payment is not difficult. Reporting form is Form 5-1 attached to the FOREIGN EXCHANGE TRANSACTIONS REGULATION, and a letter of explanation, a copy of commercial invoice, and a document to prove the payment method shall be attached to Form 5-1. If the payment amount doesn’t exceed USD 10,000, the reporting documents shall be filed with a foreign exchange bank. However, in other cases, the documents shall be filed with the Bank of Korea (BOK). If you want to avoid paperwork, just pay the seller.

 

The consequences for violating third-party payment reporting can be serious. If the violated amount exceeds USD 10,000, the penalty is imprisonment with labor for not more than one year or a fine not exceeding KRW 100,000,000. When the triple violated amount exceeds KRW 100,000,000, the fine is not more than the triple violated amount. For amounts that do not exceed USD 10,000, the penalty is an administrative fine. In the case of violating reporting to a foreign exchange bank, the administrative fine is KRW 1,000,000 or 2% of the violated amount, whichever is greater. In the case of violating reporting to the BOK, the administrative fine is KRW 2,000,000 or 4% of the violated amount, whichever is greater.

 

Even if you failed to follow the legitimate procedures due to ignorance or mistake, you would have to pay the fine once a violation is detected. Ignorance or intention is not considered in imposing the fine.