Recent Developments

On Thursday, May 14, 2026, the Korean National Tax Service (NTS) held a joint meeting with the Korea Trade-Investment Promotion Agency (KOTRA) and other foreign chambers of commerce [1] to present tax administrative support measures aimed at enhancing Korea’s attractiveness as an investment destination. A key measure announced was the plan to introduce a streamlined procedural framework to facilitate the expeditious processing of advance pricing agreements (APA fast-track). This reflects Korea’s acceptance of the OECD’s recommendation to simplify review procedures for APA renewal applications and for low-risk or routine transactions. 1. Overview of APA in Korea     An advance pricing agreement (APA) is a procedure under which a taxpayer and the tax authority agree in advance on the transfer pricing methodology and arm’slength range applicable to cross-border related-party transactions. Korea introduced the APA regime in 1996 and concluded its first APA with the United States in May 1997. APAs are generally divided into unilateral APAs, which involve only one competent authority, and bilateral APAs, which involve the competent authorities of both jurisdictions. In practice, bilateral APAs have been more frequently utilized. 2. The Need for a Streamlined APA Procedure     Bilateral APAs generally take longer than unilateral APAs because they require coordination between the competent authorities of both jurisdictions. Over the past five years, the average processing period for bilateral APAs handled by the NTS, measured from commencement to conclusion, ranged from 27 to 35 months. The period perceived by taxpayers may be considerably longer because pre-filing consultations and similar processes are not included.     Meanwhile, through BEPS Action 14 on More Effective Dispute Resolution Mechanisms in 2016, the OECD commenced peer reviews of the Mutual Agreement Procedure (MAP), which encompasses bilateral APAs. While the OECD has continued efforts to improve dispute resolution mechanisms, including MAP and bilateral APAs, reducing processing times remains challenging due to the increasing number of APA applications and the growing complexity of cross-border transactions.     Against this background, the APA fast-track introduced at the joint meeting is intended to expedite certain APA renewal applications that are substantially similar to previously approved APAs. If implemented effectively, the fast-track is expected to significantly reduce the time required for taxpayers with prior APA approval histories to renew and obtain re-approval of their APAs. 3. Eligibility Requirements and Detailed Features of the APA Fast-Track     To qualify for the APA fast-track, an application must be an APA renewal application that satisfies all of the following requirements, and the regime applies to pre-filing consultation applications filed on or after May 14, 2026:     1) The application must be filed within 6 months from the expiration date of the term covered by the previously approved APA;     2) The transaction structure, functions, and risks must be identical to those under the existing APA, and the proportion of related-party transactions must be similar; and     3) The arm’slength range proposed in the renewal APA must be similar to the range previously agreed upon between the tax authorities.     The taxpayer must submit pre-filing consultation materials for the APA renewal application while satisfying all of the foregoing requirements. Following a desk review of these pre-filing consultation materials, the NTS will determine whether the APA fast-track applies within 3 months. If the application is found eligible, the NTS will consult with the other jurisdiction to have the case designated as a priority case.     The designation is significant because competent authority meetings with the treaty partner jurisdiction generally take place only once or twice a year, depending on the jurisdiction, and only a limited number of cases are discussed at each session. Accordingly, if a case is determined to be fast-track-eligible and designated as a priority case, the likelihood that it will be place on the agenda for the next scheduled competent authority meeting is significantly increased.     The 3-month desk review period begins once all materials requested by the NTS, which must be included with the pre-filing consultation submission, have been submitted. In practice, taxpayers typically compile and submit such materials in the form of a single, consolidated explanatory document. As the NTS requests approximately 20 different types of materials, thorough preparation is essential to avoid delays due to incomplete submissions. 4. Considerations for Successful Implementation of the APA Fast-Track     The purpose of introducing the APA fast-track is not merely to reduce the taxpayers’ time and costs through shortened processing times. Rather, it is intended to enhance the efficiency of the APA regime and improve the international community’s perception of Korea’s tax administration and investment environment, thereby positioning Korea as an attractive and sustainable investment destination. Although the regime is still in its early stages and detailed operational rules have yet to be issued, the following considerations should be addressed for the successful implementation of the regime.     1) Need for a Procedure to Confirm the Commencement Date of the Desk Review         Whether the APA fast-track applies is determined within 3 months following the desk review of the pre-filing consultation materials, which must include all materials requested by the NTS. In practice, it is common for additional information requests to be issued after the initial submission of pre-filing consultation materials; accordingly, the commencement of the desk review is expected to occur only upon the submission of all such supplementary materials. However, because pre-filing consultation materials are typically submitted via email and are not accompanied by an acknowledgement of receipt or a stamped receipt date, in the absence of a separate procedure, taxpayers would have to estimate the 3-month period based on the timing of their final email transmission. Therefore, it appears necessary to provide for the issuance of an official letter or acknowledgement of receipt confirming that all requested materials have been submitted and that the three-month period has commenced, in order to enhance taxpayer predictability.     2) Need for Guidelines on Pre-filing Consultation Meetings and the Acceptance of APA Applications         Under standard practice, after a taxpayer submits pre-filing consultation materials, a pre-filing consultation meeting is held, and whether the formal APA application will be accepted is determined based on that meeting and any follow-up information submitted in response to subsequent requests. Under the APA fast-track, although fast-track eligibility is to be determined within 3 months following the desk review, there currently appear to be no guidelines regarding pre-filing consultation meetings or how the APA application process and timeline would differ from the standard APA process. Clearer operational guidelines seems required in this regard as well.     3) Need for Specific Criteria for Determining Eligibility         To qualify for the APA fast-track, the application must demonstrate identity of transaction structure and functions/risks, as well as similarity in the proportion of related-party transactions and the arm’slength range. Without specific additional guidance on these requirements, the outcome may vary depending on the subjective judgment of the reviewing official. To ensure the effectiveness of the regime, the eligibility criteria should be made more specific and systematized.     4) Need for Strengthened Coordination with Other Jurisdictions to Secure Priority Case Designation         Even after the NTS determines that an application is eligible for the APA fast-track, uncertainty remains because whether the case is designated as a priority case, which would be the taxpayer’s ultimate objective, depends on the outcome of consultations with the other jurisdiction. For the APA fast-track to be effective in practice, prior coordination with other major jurisdictions that have sufficient experience with APA approvals will be necessary. In particular, mutual coordination should be strengthened. For example, once fast-track eligibility is determined within 3 months following the desk review, consultations with the other jurisdiction regarding priority case designation should be initiated within a defined period thereafter. In addition, Korea should seek to reach an understanding with other major jurisdictions that priority case designation will be granted absent specific and significant disqualifying circumstances. 6. Takeaways     The APA fast-track represents an effort both to enhance Korea’s attractiveness as an investment destination by expeditiously alleviating the burden of double taxation and to align domestic practice with OECD international standards. It is expected to substantially ease the difficulties faced by global enterprises. In particular, it is likely to provide significant benefits to companies that have repeatedly renewed APAs in connection with cross-border transactions involving counterparties in the United States, Japan, EU member states and other major trading partners of Korea. Even for companies without such a track record, the importance of successfully concluding an initial APA is expected to grow further.     That said, further improvements to the regime and coordination with other jurisdictions remain to be addressed. It remains to be seen how the APA regime, which has been operated in Korea for 30 years since its introduction in 1996, will evolve with the introduction of the APA fast-track. The Tax Group at Lee & Ko possesses extensive experience and expertise in international tax and transfer pricing matters. Please feel free to contact us should you require assistance with any tax-related matter, including those discussed in this newsletter. [Footnotes below] [1] This includes the American Chamber of Commerce in Korea (AMCHAM), the European Chamber of Commerce in Korea (ECCK), the Korean-German Chamber of Commerce and Industry (KGCCI), the French Korean Chamber of Commerce and Industry (FKCCI), the British Chamber of Commerce in Korea (BCCK), the Seoul Japan Club (SJC), the China Chamber of Commerce in Korea (CCCK), and the Australian Chamber of Commerce in Korea (AustCham Korea).  

1. Background: Evolution of the Foreign Omnibus Account System     Foreign investment in the Korean stock market has exhibited a long-term growth trend despite periods of volatility. As of the end of 2025, foreign investors’ total equity holdings in Korea reached approximately KRW 1,309 trillion, a substantial increase from KRW 509.7 trillion in 2018. Notwithstanding this growth, the regulatory framework governing foreign investment in Korean equities had long been regarded as relatively inaccessible, particularly for foreign retail investors and small-to mid-sized institutional investors. Traditionally, foreign investors were required either to register directly with Korean financial authorities under the foreign investor registration regime (which remained in effect until December 2023) or to open individual accounts with Korean financial institutions, creating practical and administrative barriers.     To address these issues, Korea introduced the foreign omnibus account system in 2017, aligning its capital market infrastructure more closely with global practices. A foreign omnibus account is an account opened in the name of a foreign financial investment firm, through which foreign ultimate investors may collectively purchase and settle Korean equities without opening individual accounts with Korean securities brokerage firms.     Since its introduction, the regulatory framework has been gradually refined to enhance usability. A notable development occurred in 2023, when the obligation to report omnibus account transaction details on a T+2 basis was abolished, significantly reducing operational burdens.     Despite these improvements, the foreign omnibus account system had not been widely used, largely due to (i) overly restrictive eligibility requirements for account opening and (ii) the absence of clear and practical implementation guidance.     Under the prior framework, a foreign financial investment firm seeking to open an omnibus account was required to be a controlling shareholder or affiliate of a Korean financial investment firm or a Korean general partner of collective investment vehicles, while lawfully conducting, outside Korea, business activities equivalent to investment dealing, investment brokerage, or collective investment business. These requirements effectively excluded many small- and mid-sized foreign financial institutions from using omnibus accounts on behalf of their investors. 2. Regulatory Relaxation and Practical Guidance     As part of its broader policy agenda to facilitate Korea’s inclusion in the MSCI Developed Markets Index, the Korean government has been pursuing regulatory reforms to activate the foreign omnibus account framework in the foreign exchange and capital markets. In this context, on November 27, 2025, the government announced the Foreign Omnibus Account User Guidelines.     This Guideline relaxed the eligibility requirements for opening foreign omnibus account, eliminating the requirement that a foreign financial investment firm be a controlling shareholder or affiliate of a Korean financial investment firm or a Korean general partner. As a result, foreign investors are now permitted to trade Korean equities directly through their local securities firms without opening separate accounts with Korean brokerage firms, thereby improving accessibility to the Korean stock market.     Beyond expanding eligibility, the reforms significantly streamline operational and administrative processes for foreign asset managers and investors. Under the new framework, a global custodian acting on behalf of individual funds managed by foreign asset managers may establish consolidated settlement accounts in Korea and submit account-opening documentation on behalf of those funds. This represents a substantial departure from prior practice, under which foreign asset managers were required to open accounts and submit documentation separately for each fund, resulting in considerable administrative burden.     In addition, procedures previously required for foreign corporate investors—such as notarization and strict face-to-face identity verification—have been simplified. Foreign entities may now satisfy identity verification requirements through authorized representatives, and notarization requirements have been relaxed. By utilizing foreign omnibus accounts, foreign retail investors are expected to be able to handle currency exchange, stock trading, and settlement through a single account with their local securities firm, enhancing efficiency and convenience.     Against this backdrop, Korea’s first foreign omnibus account was opened in August 2025 through a partnership between a major Korean securities brokerage firm and a Hong Kong securities firm, and trading has commenced. Following this initial launch, interest among Korean securities firms has increased, and additional partnerships between Korean and foreign securities firms are being explored. 3. Application of Reduced Tax Treaty Rates for Non-Residents Using Foreign Omnibus Accounts Through Refund Claims     Although the foreign omnibus account regime enhances operational efficiency and market access, foreign investors should note that Korean withholding tax treatment and access to tax treaty benefits depend on the ability to substantiate beneficial ownership and satisfy applicable procedural requirements.     Under current Korean tax law, Korean-source income arising from investments made through foreign omnibus accounts is generally subject to withholding tax at domestic statutory rates (22% for dividends, including local surtax). However, eligible investors may seek applicable tax treaty benefits through post-withholding refund claims.     To apply for tax exemption or reduced withholding under an applicable tax treaty, a non-resident must, within five years from the end of the month in which the withholding tax was imposed, submit an application for tax exemption or relief under the relevant tax treaty, together with supporting documentation evidencing entitlement to such benefits. These documents include, in particular, a certificate of residence issued by the tax authority of the non-resident’s country of residence, as well as other evidentiary materials supporting the claim for exemption or relief. The application must be filed with the district tax office having jurisdiction over the payor of income.     Under Korean tax law, a non-resident may file such application through an authorized agent. In the context of securities transfers, where a non-resident opens and uses a foreign omnibus account through its local securities firm, the Korean securities company that opens and maintains the omnibus account and bears the withholding obligation under the Korean law may be regarded as an agent of the non-resident account holder for purposes of submitting the relevant tax treaty exemption or relief application. 4. How LK can help     Korean retail investors are already actively trading foreign listed securities—primarily U.S.-listed stocks—through omnibus accounts established by the Korea Securities Depository (KSD), the central securities depository of South Korea, with global custodian banks for the benefit of Korean securities firms. This structure enables Korean retail investors to directly access foreign equity markets through their domestic brokerage firms and has become a well-established and widely used investment channel in Korea.     Lee & Ko has played a significant role in this international securities settlement environment involving omnibus accounts in Korea. In particular, Lee & Ko provides cross-border withholding tax services to KSD—an institution central to the operation of omnibus accounts in Korea—as well as to more than 30 Korean securities firms that have opened foreign accounts dedicated to the foreign investments made by Korean retail investors. In this regard, Lee & Ko has one of the most extensive advisory track records in Korea in connection with omnibus account–based cross-border securities investment structures.     In addition, Lee & Ko has substantial experience in assisting overseas funds and non-resident investors with refund claims for Korean withholding taxes, including numerous successful cases involving Korean equity investments by foreign investors.     Based on its extensive experience and established working relationships with KSD and Korean securities firms—both of which are key participants in the foreign omnibus account business for non-resident investors and foreign brokerage firms—Lee & Ko is well positioned to provide practical guidance on Korean market practice and to support efficient and effective tax refund claims for foreign securities firms and non-resident investors interested in investing in Korean equities through foreign omnibus account structures. Our assistance includes: (i) analysis of withholding tax obligations and tax treaty applicability; (ii) preparation and support of refund claims for excess withholding tax; (iii) review of documentation and contractual arrangements with Korean securities firms; and (iv) engagement with Korean tax and regulatory authorities throughout the investment process. Should you require further assistance regarding the Foreign Omnibus Account Regime or related tax matters, please feel free to contact us at any time.