Transfer of Customs Duty Drawback Rights Following Transition from Sole Proprietorship to Corporation Released

When transitioning from a sole proprietorship to a corporation, the right to claim duty drawbacks for exports made during the sole proprietorship period does not transfer to the newly established corporation. This applies even if the representative remains the same and the business operations are identical. This interpretation is based on the Act on Special Cases concerning the Refund of Customs Duties, etc. Levied on Raw Materials for Export (the "Drawback Special Act") and associated regulations to ensure transparency and uphold the principle of independent legal personhood.

Legal Definition of Eligible Drawback Applicants

According to Article 18, Paragraph 1 of the Enforcement Decree of the Drawback Special Act and Article 4 of the Notice on the Administration of Customs Duty Drawbacks, the authorized applicants for a drawback are defined as:

• The manufacturer of the exported goods
• The exporter (or supplier) of the exported goods

The core principle is that the legal entity that performed the export act is the sole party entitled to the resulting drawback rights.

Legal Distinction Between Entities

While a sole proprietorship and a corporation may be operated by the same individual, they are entirely separate legal entities. A sole proprietorship is a business form where the owner assumes all legal responsibilities and assets personally. In contrast, a corporation is an independent legal "person" granted rights upon registration.

• Dissolution: Closing a sole proprietorship signifies the termination of that specific legal subject.
• Creation: Establishing a corporation signifies the birth of a new, distinct legal subject.

Legally, this is viewed as a change in the legal subject of the business, not merely a change in the business format.

Strict Limitations on the Succession of Rights

The Drawback Special Act strictly limits the scope of succession regarding drawback rights. Per Article 4, Paragraph 1, Item 3 of the Drawback Notice, succession of the applicant's status is recognized only in the event of a "Corporate Merger."

A corporate merger involves a comprehensive succession of rights and obligations under the Commercial Act, maintaining legal continuity. Closing a sole proprietorship and opening a new corporation is fundamentally different from a merger; it is the extinguishment of one entity and the creation of another. Therefore, the new corporation cannot be viewed as a successor to the previous entity's customs refund rights.

Conclusion and Recommendations

In conclusion, the right to claim duty drawbacks for goods exported under a sole proprietorship remains with that original entity. Once the sole proprietorship is closed, the ability to exercise those rights effectively ceases. To prevent the loss of such rights and ensure compliance, it is critical to:

• Finalize all outstanding duty drawback claims prior to closing a sole proprietorship.
• Consult with a Customs Broker or legal expert before restructuring business entities to understand the impact on existing rights and obligations.
• Ensure a clear audit trail of manufacturing and export records during the transition period.