Is Domestic Delivery from a Foreign Supplier's Local Factory Recognized as Import Performance? Released

The interpretation provided by your foreign exchange bank is accurate. Your transaction is not recognized as a legal "import" under the Customs Act or the Foreign Trade Act. Instead, it is classified as a Domestic Acquisition Import under the Foreign Exchange Transactions Act, which does not count toward your company's import performance records.

1. Definition of 'Import' Under the Customs Act

According to Article 2 of the Customs Act, an import is defined as the act of bringing "foreign goods" into the territory of South Korea. "Foreign goods" refers to items arriving from abroad or those for which an export declaration has been accepted. For a transaction to be legally considered an import, the goods must physically cross the customs line into the country. In your situation, although the contract was with an overseas entity (Company A), the actual delivery was made by a domestic factory (Company B) already located within South Korea. Since the goods never crossed the customs border, no import declaration could be filed, and therefore, no import performance occurred under the Customs Act.

2. Concept of 'Domestic Acquisition Import'

The term Domestic Acquisition Import refers to a specific trade structure where a domestic buyer enters into a purchase agreement with a foreign seller but receives the goods from the seller's local branch or production facility within South Korea. The defining characteristics are as follows:

• The physical movement of goods is restricted to the domestic territory.
• Because there is no international movement of goods, the transaction does not qualify as an import under the Foreign Trade Act.
• Consequently, it is excluded from the calculation of "Import Performance," which is a prerequisite for certain trade finances, duty drawbacks, and government support programs.

3. Foreign Exchange and Accounting Treatment

While the transfer of funds to the overseas Company A is technically a payment between a resident and a non-resident under the Foreign Exchange Transactions Act, it is not categorized as a payment for the "import of goods." Banks may classify this as a payment to a non-resident or a capital/service-related transaction, but they will not issue an import performance certificate for it. From an accounting perspective, this should be treated as a domestic purchase of goods, while the outward remittance must be supported by the underlying purchase contract and evidence of domestic delivery.

Conclusion

In summary, the bank's refusal to recognize this as import performance is legally sound. Your transaction qualifies as a Domestic Acquisition Import because the goods were delivered locally without crossing the customs border. To ensure compliance, it is important to distinguish between the financial settlement with a foreign entity and the physical movement of goods when reporting trade statistics and managing tax obligations.