Korea Tax Treaties With Other Countries

South Korea has signed Double Taxation Agreements (DTA) with 92 countries.
The tax rates may be reduced or exempted by an applicable double tax treaty between South Korea and the country in which the foreign corporation is a tax resident.
A foreign corporation may claim a refund of withholding tax paid within 3 years if it proves to the Korean Tax Office that it is entitled to the reduced treaty rates.
Otherwise, pre-approval of the tax treaty benefits can be obtained by making an application to the Commissioner of Taxation.
South Korea Tax Treaties with China <click me
South Korea Tax Treaties with Taiwan <click me

Email: sel4ww@evershinecpa.com
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We set up below judgment criteria on Treaty application:
Scenario:
If you are not a South Korean legal resident, and if your resident country has DTA with South Korea, and if you are without PE (Permanent Establishment), please go to Section A.
If you are not a South Korean legal resident, and if your resident country has DTA with South Korea, and if you are with PE (Permanent Establishment) please go to Section B.
If you are not a South Korean legal resident, and if your resident country has no DTA with South Korea, please go to Section C.

Section A:
Scenario: If you are not a South Korea legal resident, and if your resident country has DTA with South Korea, and if you are without PE (Permanent Establishment), it will be redeemed as “non-South Korea Domestic Sourced Income”.
That means South Korea will levy zero-tax.
However, you still need to send zero-tax application to South Korea Tax Bureau for being approved.
Below, we will let you understand through Q&A.

DTA-Q-10:
韓國的哪些外國法律居民公司可以依DTA申請沒有常設機構(PE)下零稅率?
In South Korea, which foreign legal resident company can apply for zero tax rate without PE under DTA?

DTA-A-10:
South Korea has signed DTAs with the following 92 countries:

DTA-Q-20:
為什麼在DTA下該國外資沒有常設機構 (PE)之外資所得，可以享受零稅率?
Why does the Country’s foreign capital without a permanent establishment (PE) in South Korea, under the DTA enjoy zero tax rate?

DTA-A-20:
It follows Article 5 and Articles 7 in the DTA Treaty. The article defines if the foreign entity has PE in South Korea. Article 7 regulates if no PE, non-South Korea domestic sourced income will not be levied tax in South Korea.

DTA-Q-30:
哪些情況被視為沒有PE，外資在該國設立子公司會被視為外資的在該國的子公司嗎?
Under what circumstances are deemed to have no PE, and will the establishment of a foreign-funded subsidiary in South Korea be regarded as a foreign-funded subsidiary in South Korea?

DTA-A-30:
According to DTA Article 5 item 7, A Wholly Foreign Owned subsidiary in South Korea will not be treated as PE because it is a separate legal entity.
That means if a South Korean Subsidiary pay a service fee to non- South Korea Parent Company through a service contract signed between 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.
Please see the South Korea Transfer Pricing webpage.

DTA-Q-40:
外資在韓國設立分公司或辦事處，可否適用沒有PE下的零稅率?
If a foreign company establishes a branch or office in South Korea, can the zero-tax rate without PE be applied?

DTA-A-40:
According to DTA Article 5 item 2, If a foreign company sets up a branch or office in South Korea, then will be considered as South Korea domestic Income.
But According to DTA Article 5 item 4，if an Office is only doing preparatory or auxiliary activity, will apply a zero-tax rate.

DTA-Q-50:
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?

DTA-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 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.

Section B:
Scenario:

If you are not a South Korean legal resident, and if your resident country has DTA with South Korea, and if you are with PE (Permanent Establishment), 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.
Below, we will let you understand through Q&A

DTA-Q-60:
被視為韓國來源所得的判定要素?
What are the factors that are deemed to be the country’s domestic source income?

DTA-A-60:
Article 119 of the Income Tax Act states that Domestic source income of a nonresident shall be included as follows:
*Interest income received from the State, a local government, a resident, a domestic corporation.
*Dividend income prescribed in Article 17 (1) received from a domestic corporation.
*Income generated from transfer, lease, or other operation of real estate in the Republic of Korea.
*Income generated from lease of a vessel, an airplane, a registered automobile, construction machine, or an industrial, commercial, or scientific machine, equipment, apparatus and other tools and instruments to a resident, a domestic corporation.

*Income generated from business conducted by a nonresident.

DTA-Q-70:

DTA第五條及第七條優先於韓國來源所得的判定要素?
Do Article 5 and Article 7 in the DTA take precedence over the South Korea determination factors on South Korea domestic sourced income?

DTA-A-70:
When DTA is applied, in the event of a different PE definition between South Korea domestic tax laws and Article 5 in the DTA, the definition under the DTA shall prevail the domestic regulations.
When DTA is applied, if the foreign company is defined as without PE (Permanent Establishment) in South Korea, then will be considered non-South Korea domestic sourced income, in the event business profit is relevant to this issue, the clause in Article 7 in the DTA zero-rate tax can be applied accordingly.
In this scenario, please see section A.

DTA-Q-80:
當非韓國稅務居民有韓國來源所得，不考慮DTA 情況下，韓國稅法扣繳稅率多少?
When non-tax residents of South Korea have South Korea domestic sourced income, what is the withholding tax rate according to South Korea tax regulations excluding DTA?

DTA-A-80:
The withholding tax rates under domestic law are:
Business Profits – 20% (22% including local surtax)
Dividend – 20% (22% including local surtax)
Interest (General loan) – 20% (22% including local surtax)
Royalties fee – 20% (22% including local surtax)
Technical services – 20% (22% including local surtax)
Professional services – 20% (22% including local surtax)

DTA-Q-90:
If DTA Tax Rate is higher than the South Korea tax rate, apply which tax rate?

DTA-A-90
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.

DTA-Q-A0:
當非韓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 non-tax residents of South Korea having South Korea domestic sourced income, what is South Korea’s application procedure based on the DTA preferential tax rate?

DTA-A-A0:
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.

Section C:

DTA-Q-B0:
As an investor, if your country has not signed DTA with South Korea, what kinds tax rates when you have South Korea relevant income?

DTA-A-Q0:
If you are not a South Korean legal resident, and if your resident country has not DTA with South Korea,
Whatever you are with PE or without PE, all kinds of income will be levied according to South Korea domestic sourced income.
Besides, it will be levied by South Korea Tax Rates.
The withholding tax rates under domestic law are:
Business Profits – 20% (22% including local surtax)
Dividend – 20% (22% including local surtax)
Interest (General loan) – 20% (22% including local surtax)
Royalties fee – 20% (22% including local surtax)
Technical services – 20% (22% including local surtax)
Professional services – 20% (22% including local surtax)

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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E-mail: sel4ww@evershinecpa.com
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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