[EN] "Can I Use a Friend's Account Temporarily?" Why Nominee Accounts Can Create Serious Legal and Tax Risks in Korea
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| Foreign investor reviewing nominee account risks before investing in Korea. |
Opening investment accounts, establishing a Korean corporation, and completing immigration procedures can take time.
In the middle of this process, some overseas investors receive a seemingly practical suggestion.
"Why don't you send the money to my account first? We can move it to your account later."
At first glance, the idea sounds harmless.
After all, the money is yours.
You trust the person.
The arrangement is only temporary.
So an important question naturally follows:
"If the money belongs to me, why would using someone else's account be a problem?"
Imagine the following situation.
An international investor is preparing to purchase commercial property in Seoul.
The closing date is approaching, but the investor's Korean corporate account has not yet been opened.
A trusted Korean business partner offers to receive the funds temporarily through a personal account.
The investor wires the money and plans to transfer ownership later.
Several months later, the bank requests additional explanations regarding the origin and ownership of the funds.
What happened?
In many cases, the issue is not trust.
The issue is that Korean financial regulations operate on verified legal identity rather than private arrangements.
[Official Guidance]
South Korea operates a real-name financial transaction system.
Financial institutions are required to identify customers and conduct customer due diligence procedures.
The Act on Real Name Financial Transactions and Confidentiality prohibits certain financial transactions conducted under another person's name for unlawful purposes, including concealing illicit assets, money laundering, avoiding compulsory execution, or tax evasion.
Violations may result in criminal penalties, including imprisonment for up to five years or fines of up to KRW 50 million.
[Executive Commentary]
Many foreign investors assume:
"The money is legally mine, so using a trusted person's account temporarily should not matter."
Official rules suggest otherwise.
Korean financial institutions do not evaluate transactions based on personal trust.
They evaluate transactions based on documented ownership, verified identity, and the purpose of the transaction.
When investment funds are placed in another person's name, additional legal, banking, and tax questions may arise.
Why Name Borrowing Creates Tax Risks
[Official Guidance]
Under the Framework Act on National Taxes, Korean tax authorities may apply the principle of actual taxation.
Where the nominal owner and the substantive owner differ, tax laws may be applied to the person who is regarded as the actual owner of the income, property, or transaction.
[Executive Commentary]
This creates another common misunderstanding.
Many investors believe:
"If the account is under someone else's name, the tax consequences will also belong to that person."
Korean tax law may take a different view.
Tax authorities may examine who actually controlled the funds, who received the economic benefit, and who was the substantive owner of the transaction.
As a result, using another person's account does not necessarily separate an investor from future tax obligations.
The Real Lesson
[Official Guidance]
Korean financial institutions continue to strengthen customer identification and anti-money laundering procedures.
Financial transactions involving large cross-border transfers may require additional verification regarding ownership and source of funds.
[Executive Commentary]
The common mistake is not opening an account late.
The common mistake is attempting to solve an administrative delay through an informal arrangement.
Many investors ask:
"How can I move the money more quickly?"
A more important question may be:
"How can I move the money under my own verified legal identity from the beginning?"
For international investors, establishing the correct banking and investment structure before transferring funds may prevent significant legal and tax complications later.
Implementation Date
Act on Real Name Financial Transactions and Confidentiality and related customer due diligence requirements currently in force as of June 2026.
Fact-Check Materials Used
- Act on Real Name Financial Transactions and Confidentiality
- Framework Act on National Taxes
- Korea Financial Intelligence Unit AML guidance
- Customer due diligence guidance relating to financial institutions
Official Sources
- Financial Services Commission
- Korea Financial Intelligence Unit (KoFIU)
- Act on Real Name Financial Transactions and Confidentiality
- Framework Act on National Taxes
Disclaimer
This article is a pre-understanding guide based on publicly available official materials issued by Korean government institutions. It is intended to help readers understand the structure of the system before consulting qualified professionals. It does not constitute legal, tax, banking, or investment advice.
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