Succession of Duty Drawback Rights Upon Conversion from a Sole Proprietorship to a Corporation Released

Overview of Duty Drawback Succession

Under the current Act on Special Cases concerning the Refund of Customs Duties, etc. Levied on Raw Materials for Export (the "Drawback Special Act") and its related public notices, the right to apply for a duty drawback for goods exported during the period of a sole proprietorship does not transfer to a newly established corporation. This applies even if the representative remains the same and the business operations are continuous. This legal interpretation is based on the fundamental principle of independent legal personality and the need to ensure transparency in the duty drawback system.

Legal Standing of the Applicant

Pursuant to Article 18(1) of the Enforcement Decree of the Drawback Special Act and Article 4 of the Public Notice on the Handling of Customs Duty Drawback (the "Drawback Notice"), the eligible party for a drawback application is defined as the manufacturer or the exporter (supplier) of the exported goods. The critical factor is identifying the specific legal entity that conducted the export and to whom the legal right to the refund was originally attributed.

Independence of Legal Personalities

Even if a sole proprietorship and a corporation are managed by the same individual, they possess entirely separate legal identities. A sole proprietorship operates based on the individual owner's assets and legal liabilities. In contrast, a corporation is a distinct legal entity granted its own rights and obligations through registration. Therefore, closing a sole proprietorship signifies the termination of that specific legal subject, and establishing a new corporation marks the creation of a completely different legal entity. This is viewed not merely as a change in business structure, but as a total shift in the legal subject conducting the business.

Strict Limitations on Succession (Corporate Mergers)

The Drawback Special Act and its notices strictly limit the scope of succession for drawback rights. Article 4(1)(3) of the Drawback Notice specifies that the status of an applicant may be succeeded only when "corporations acting as manufacturers or exporters (suppliers) are merged," whereby the surviving or newly established corporation assumes the rights. The core requirements for this are:

• Specific Legal Action: The succession is limited strictly to "corporate mergers."
• Comprehensive Succession: Mergers involve a formal process under the Commercial Act where rights and obligations are comprehensively transferred and legally recognized.

Final Conclusion and Professional Advice

Closing a sole proprietorship and subsequently opening a new corporation is legally distinct from a corporate merger. Because the legal identity is not maintained, the drawback rights belonging to the former sole proprietorship cannot be transferred to the new corporation. Once the original legal subject is closed, the exercise of those rights becomes practically impossible. To prevent the loss of such rights, it is crucial to consult with a Customs Broker or trade expert prior to restructuring your business to ensure all existing rights and obligations are properly managed during the transition.