Relocation to head office

Dear Simon,

 

How are you doing these days?  Appreciate your support to help us to file the 7-month income tax returns for the period from Oct 1st, 2012 to April 30, 2013.

However, I’m writing this mail to seek your advices and input for the questions of resignation fund. Last summer, ABC Korea had one employee who was assigned to work in the ABC US for one year.  Currently, ABC Korea and the employee reached a consent that he would continue to stay and work in the ABC US.  Therefore, our US management decided to transfer the employee from ABC Korea to the US.  In other words, he is no longer kept in Korea payroll list but instead ABC US pays his salary and all related personnel costs after the transfer date which is expected to be on June 30 or July 31st, 2013.

As the employee is still working in ABC Korea, our US management do not want to cash payout the “resignation fund” which he is entitled to receive by working in ABC Korea for the past few years on the transferring date of June 30 or July 31st, 2013.  Later on, if the employees resign from ABC US then the “resignation fund” should be paid to him [but we do not know when or the timing the employee will resign from US]. Could you please advise whether the arrangement is doable?  In other words, does it must to pay out the “resignation fund” on June 30, 2013, to the employee who is resigned from ABC Korea, a subsidiary of ABC US?  Or it’s ok to pay him later?

Based on the above information, could you please provide your advices and input for any issues we should consider according to the local Korea tax laws or regulations.  In addition, could ABC Korea continue to keep the liability ; Severance Reserve on Korea books even the employee been transferred to the US this year [no longer an employee of ABC Korea after June 30, 2013]?  Would it make a difference if the employee will be returning back ABC Korea to work in 2 years later? 

Thank you very much in advance for the advices. 

Best Regards,


Dear Client

Since Korean employee of ABC Korea shall be removed from Korea payroll list, s/he should be considered as retiring from ABC Korea.
So, as of the transfer date (June 30 or July 31 of 2013), ABC Korea should pay severance allowance to him/her.
The journal entry shall be as follows.
Dr) severance allowance (his/her portion)  ***
    Cr) cash (to the employee)                        ***
ABC Korea shall withhold a certain amount of tax from the severance allowance and pay it to the 10th of next month.
 
 
Regards,
Simon


Dear Simon,

Thanks for the feedback.

Based on what you described, what if ABC Korea and the employee have a written agreement then can the resignation fund be cashed out later, not immediately on the transfer date?

What will be your advice if ABC do not want to pay out the resignation fund in June or July 2013 and assuming the employee only stay in the US for another one year, from July 1st, 2013 to June 30, 2014 then he will go back to work in ABC Korea again?

Thank you very much again.

Best Regards,


Dear Client
 
 
what if ABC and the employee have a written agreement then can the resignation fund be cashed out later, not immediately on the transfer date?
    => Under the Article 9 of the "Guarantee of Worker's Retirement Benefits Act", where any worker retires from the company, the employer shall pay such worker a retirement allowance within 14 days from the date when s/he actually retires from the company. However, the payment can be delayed under an agreement between the retiree and the company.
 
 
if ABC do not want to pay out the resignation fund in June or July 2013 and assuming the employee only stay in the US for another one year, from July 1st, 2013 to June 30, 2014 then he will go back to work in ABC Korea again?
    => If the employee is certain to come back to ABC Korea after working a year or so in the States, ABC Korea can pay the severance alowance to him/her for the full service year including the period in the States when s/he actually retires from ABC Korea.
 
 
 Regards,
Simon