S. Korea raises deposit insurance payout ceiling for first time in 24 years

● Updated law: Depositor Protection Act

What it does: Bolsters the protection of depositors from financial risks

Took effect: Sept. 1

The maximum deposit insurance payout has doubled to 100 million won ($71,400) starting Sept.1. The figure had been set at 50 million won for 24 years since 2001.

Deposit insurance guarantees that if a bank or other deposit-taking institution fails, depositors will still recover their money up to a certain limit.

In the past, financial authorities had taken a cautious stance on raising the deposit payout ceiling. However, they considered significant growth in Korea’s economic scale and depositor assets, and the relatively lower payout of deposit insurance compared to other major economies. The need to raise the ceiling has been consistently discussed, particularly within the current 22nd National Assembly.

The ceiling will be raised for financial institutions such as banks and savings banks covered by the state-run deposit insurance agency, the Korea Deposit Insurance Corporation. It also covers credit unions, agricultural cooperatives, fisheries cooperatives, forestry cooperatives and community credit cooperatives, where deposits are protected by their respective organizations. In other words, once the amendment takes effect, if a financial institution or mutual finance cooperative is unable to pay out deposits due to bankruptcy or other reasons, depositors will be protected for up to 100 million won.

In addition, the same 100 million won limit will apply separately to retirement pensions, including defined contribution plans and individual retirement pensions (IRPs), as well as pension savings accounts and certain insurance payouts provided by mutual finance institutions.

This means that coverage will be separately applied by category within the same financial institution or cooperative. For example, a depositor with 100 million won in a savings account and another 100 million won in an IRP at the same bank would be insured for both amounts, effectively doubling the level of protection.

●Updated Law: The Framework Act on National Taxes

What it does: Imposes compulsory penalties on taxpayers who fail to submit required materials

Took effect: Sept. 15

Starting with tax audits initiated after Sept. 15, taxpayers who fail to fulfill their statutory obligation to submit required materials without a justifiable reason may be subject to compulsory penalties. This is due to the enforcement of the amended Article 85-7 of the Framework Act on National Taxes, promulgated on March 14. Although the compulsory penalty system was initially triggered by tax audits of certain multinational corporations, the revised provisions apply to all taxpayers. Because the system differs from existing penalty surcharges and other compulsory penalty regimes under separate laws, there are several practical points that require close attention.

The amended rule provides that if a taxpayer, without justifiable reason, fails to comply with the obligation to submit statutory books, documents, or other items (collectively, “books and records”) during a tax audit, the taxpayer will be charged a compulsory penalty of 0.1 percent to 0.2 percent of the taxpayer’s average daily revenue for each day of delay. If the taxpayer has no average daily revenue or it is difficult to calculate, a fixed penalty of 5 million won per day will be imposed.

Before imposing the compulsory penalty, the head of the competent regional tax office must notify the taxpayer and grant a compliance period of at least 30 days. Compared with the compulsory penalties imposed by the Fair Trade Commission under the Monopoly Regulation and Fair Trade Act for failure to submit materials, the rate of assessment is the same, but the fixed daily penalty is 2.5 times higher, and the minimum compliance period is explicitly set by law.

In collaboration with the Ministry of Government Legislation, The Korea Herald publishes a monthly article on laws that have recently been updated in South Korea. The ministry’s Easy Law service (https://www.easylaw.go.kr/CSM/Main.laf) provides accessible summaries of Korean laws grouped by category in English and 11 other languages: Arabic, Bengali, Cambodian, Simplified Chinese, Indonesian, Japanese, Mongolian, Nepali, Thai, Uzbek and Vietnamese — Ed.