Korea Tax Treaties with China

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CN-Q-10:
中國母公司在韓國是否可以依DTA申請沒有常設機構(PE)下零稅率?
China Parent Company, can apply for zero tax rate without PE under DTA in South Korea?

CN-A-10:
Yes.
China has DTA with South Korea, and if China Legal Resident company is without PE (Permanent Establishment), it will be redeemed as “non-South Korea Domestic Sourced Income”.
That means South Korea will levy zero-tax.
However, China Legal Resident company still needs to send the zero-tax application to South Korea Tax Bureau for being approved.
That means if a South Korean Subsidiary pay a service fee to a non-South Korea Parent Company through a service contract signed between the subsidiary and non -South Korea Parent company
as an investor, a non-South Korea Parent Company can apply zero tax.
As for if the paid amount is reasonable, it will get involved TP (Transfer Pricing) judgment by South Korea Tax Bureau.

CN-Q-20:
中國母公司在韓國設立了韓國子公司，中國母公司替子公司服務收入能否申請零稅率?
When China Parent Company as an Investor, set up a South Korea subsidiary, and provide services from China to South Korea Subsidiary, can apply for zero tax rate without PE under DTA in South Korea?

CN-A-20:
According to DTA Article 5 item 7, a South Korea subsidiary will not be treated as PE of China Parent company as an investor because it is a separate legal entity.
That means if a South Korea Subsidiary pay service fee to China Parent Company through a service contract signed between subsidiary and China Parent company
as an investor, China Parent Company can apply zero tax.
As for if the paid amount is reasonable, it will get involved TP (Transfer Pricing) judgment by South Korea Tax Bureau.

CN-Q-30:  
韓國依DTA沒有PE下零稅率申請的程序為何?
 What is the procedure for South Korea to apply for zero tax rate under DTA without PE?

CN-A-30:
Pre-approval of the tax treaty benefits can be obtained by making an application to the Commissioner of Taxation. Without the pre-clearance, the withholding agent should apply the domestic withholding tax rates.
*Form 29-2(1) Application for Non-Taxation: Tax Exemption for Corporations on Korean Source Income under the Tax Treaty.
Download the form from the website: https://www.nts.go.kr/english/cm/cntnts/cntntsView.do?mi=10791&cntntsId=8664
*A No PE declaration letter
*Certificate of residence issued by the competent authority of the beneficial owner’s country of residence.

CN-Q-40:  
中國母公司有韓國來源所得的各項所得扣繳稅率為何?
When China Resident company has South Korea domestic sourced income, what are the withholding tax rates for various incomes in South Korea?

CN-A-40:
China has DTA with South Korea, and if you are with PE (Permanent Establishment) in South Korea, your income will be considered as South Korea domestic sourced income.
As for levying Tax Rate, please be aware:
if South Korea Tax rate > DTA Rate, adopt DTA Rate; if South Korea Tax rate < DTA Rate, adopt South Korea Rate.
If DTA is applied, the DTA rates between China and South Korea are as below:

*The withholding tax rate under domestic law may apply rather than the treaty rate where the domestic law rate is lower than the treaty rate.

CN-Q-50
當中國稅務居民有韓國來源所得，依DTA優惠稅率申請的程序為何?
When China Tax Resident has South Korea domestic sourced income, what is South Korea’s application procedure based on the DTA preferential tax rate?

CN-A-50:
Pre-approval of the tax treaty benefits can be obtained by making an application to the Commissioner of Taxation. Without the pre-clearance, the withholding agent should apply the domestic withholding tax rates.
*Form No. 72-2 Application for Entitlement to Reduced Tax Rate on Domestic Source Income (Foreign Corporation)
Download the form from the website: https://www.nts.go.kr/english/cm/cntnts/cntntsView.do?mi=10791&cntntsId=8664
*Certificate of residence issued by the competent authority of the beneficial owner’s country of residence.

Summary of TAX TREATY between South Korea and CHINA

The Government of the Republic of Korea and The Government of the People’s Republic of China concluded and signed an Agreement for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income (Double Taxation Agreements, DTA), on 28 March 1994 and takes effects from 28 September 1994.

Permanent Establishment

Article 5 states the term permanent establishment (PE) means a fixed place of business which generally includes the followings:
*A place of management
*A branch
*An office
*A factory
*A workshop
*The furnishing of consultancy services through employees or other personnel for periods aggregating more than 6 months.

Withholding Tax

*Article 7 of DTA between South Korea and China explained, South Korea may not tax payments on business profits rendered by China corporations unless it is attributable to the permanent establishment situated in the relevant territory.

*In Article 10, dividends paid by a South Korea Resident enterprise to China Resident enterprise, the tax charged shall not exceed 5% if China enterprise holds directly at least 25% of the capital of South Korea enterprise. In other cases, tax charged shall not exceed 10%.

*Article 11 states that where the beneficial owner of the interest (excluding interest from the government) is a non-resident, shall be taxed in the territory in which it arises at the rate not exceeding 10% of the gross interest.

*Article 12 explained royalties means payment for the use of, right to use of any copyright of literary, artistic, or scientific works including cinematographic films and films or tapes for radio or television broadcasting, any patent, know-how, trademark, design or model, plan, secret formula, or process, or for the use of, or the right to use, industrial, commercial, or scientific equipment, or for information concerning industrial, commercial, or scientific experience.

*Technical services are covered by the business profits in Article 7. South Korean corporations may not tax payments for technical services rendered by a China enterprise unless it is attributable to PE. Technical services rendered in an independent capacity should be covered in Article 14 (see professional services) instead.

*A professional service or other activities provided by individuals of an independent character as explained in Article 14. South Korean corporations may not tax payments for professional service rendered by a China resident unless the China resident has a fixed place or stay in South Korea for 183 days or more. An independent profession includes physicians, lawyers, engineers, architects, dentists, and accountants.

Elimination of Double Taxation

Article 23 of the DTA states that double taxation shall be eliminated by allowing tax credit to be made available to the home resident territory. It shall be credited against the tax levied in the first-mentioned territory on that resident. However, the amount of credit shall not exceed the amount of the tax in the first-mentioned territory.

Exchange of Information

Article 26 states that the competent authorities of the territories shall exchange such information (including documents or certified copies of the documents) relevant to the provision of this Agreement.

Please be aware below Warning:
The above contents are digested by Evershine R&D and Education Center in October 2021.
Regulations might be changed as time goes forward and different scenarios will adopt different options.
Before choosing options, please contact us or consult with your trusted professionals in this area.

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or
Contact us by WeChat or Skype or Whatsapp in the day-work-time of China (GMT+8)
The Engaging Manager from Headquarter
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WeChat: Judy_Evershine
skype: Judy Wang

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(version: 2024/07)

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