If I receive payment for an export contract with Company A in China from Entity B in Hong Kong, must I file a third-party payment report under the Foreign Exchange Transactions Act? Released

To start with the conclusion, if you receive (receipt) export payments from a third party who is not the contracting party as you inquired, no separate reporting procedure under the Foreign Exchange Transactions Act is required. This is a frequent occurrence in trade practice and is one of the areas where many exporting companies often feel confused.

According to Article 5-10, Paragraph 1, Item 2 of the Foreign Exchange Transaction Regulations, 'cases where a resident, who is a party to a transaction, receives payment from a non-resident who is not a party to the said transaction for the settlement of the transaction between the resident and a non-resident' is prescribed as an exception to the reporting requirement. Applying your situation to this:

1. Transaction Parties: Resident (Korean exporter) vs. Non-resident (Chinese importer A)
2. Source of Payment: Non-resident who is not a party to the transaction (Hong Kong entity B)
3. Action: 'Receipt', not payment

Since all three conditions are met, you may receive the foreign currency immediately without making a separate report for third-party payment (receipt) to the Bank of Korea or a foreign exchange bank.

It is important to understand the difference between 'payment' and 'receipt.'
The Foreign Exchange Transactions Act fundamentally manages the outflow (payment) of capital strictly, but takes a relatively lenient stance on the inflow (receipt) of capital. If, conversely, a Korean company had to 'pay' Hong Kong entity B money owed to Chinese entity A, this would, in principle, be subject to prior reporting due to concerns about money laundering or illegal capital flight. However, since receiving export payments means foreign currency is entering the country, the regulations are significantly relaxed, and the reporting obligation is exempted.

However, the absence of a reporting obligation does not mean you can process it without any supporting documentation. To prepare for future tax investigations or accounting audits, it is advisable to keep supporting documents explaining why Hong Kong entity B made the payment for the contract with Chinese entity A. Generally, it is sufficient to include a phrase such as 'Payment shall be made by Company B (Hong Kong)' in the remarks section of the export contract or invoice, or to keep email correspondence that can prove the relationship between the three parties.

In summary, receiving payment from Hong Kong entity B is a legal procedure, and you may proceed without any separate report. Please carry out your export business with peace of mind.