Korea, Republic of

A foreign corporation with income derived from sources in Korea is subject to normal CIT rates on such income if it has a Korean PE. If a foreign corporation has no PE in Korea, it will be subject to tax on its Korean-source income on a withholding basis in accordance with the tax laws and the relevant tax treaty, if applicable.

With effect from 1 January 2023, non-residents or foreign corporations without a PE in Korea and a qualified overseas financial institution (as approved by the Korean tax authority) are exempt from WHT on Korean-source interest income and capital gains derived from government bonds, currency stabilisation bonds, and other bonds specified in the Enforcement Decree of the CITL. The non-resident or foreign corporation and qualified overseas financial institution must file an application with a district tax office to receive the tax exemption. Where a Korean resident or a domestic corporation is included among the investors in an overseas collective investment vehicle that meets the requirements specified in the CITL and its Enforcement Decree, the domestic investors must file and pay tax directly on the interest income and capital gains that are exempt from WHT.

For a tax resident of a country having a tax treaty with Korea, reduced WHT rates may apply to Korean-source income, subject to the substance-over-form principles of Korean tax laws. An application form and documents supporting the substantive ownership of the Korean-source income must be submitted by a foreign entity to the Korean entity paying the income (acting as a withholding agent) in order to apply the treaty rate. The documentation requirement for the substantive ownership shall apply to application for a reduced tax treaty rate on or after 1 January 2023. If such application is not provided or a substantive owner of Korean-source income cannot be identified in the submitted documents, the withholding agent should withhold income tax at the non-treaty rate under the Korean tax laws.

For dividends, interest, and royalties, the WHT rates are limited as follows:

1. Dividends and interest paid to resident individuals by corporations generally are subject to a 14% WHT rate. In addition to this, there is a local income tax of 10% on the WHT liability.
2. In addition to the indicated tax rate, a local income tax is charged at a rate of 10% of the WHT rate.
3. Lower rate applies in case of the ownership of 10% or more of the capital of the company paying the dividend.
4. Lower rate applies to royalties for the use of, or the right to use, any patent, 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.
5. 10% rate applies if the loan period extends to seven years or more, the recipient is a financial institution, and the loan is used for certain designated purposes.
6. 25% rate applies to royalties associated with the use of trademarks or trademark rights.
   Lower rate applies in case of ownership of 15% or more of the capital of the company paying the dividend.
7. 0% rate applies for the interest on a bond, debenture or other similar obligation of the government or local authority or interest on loans or credits made or guaranteed by a central bank, etc.
8. Lower rate applies in case of the ownership of 25% or more of the capital of the company paying the dividend.
9. 10% rate applies if the term of loans exceeds three years.
10. 10% rate applies when a recipient of interest income is a bank and income is connected with a loan with a term in excess of seven years.
11. Lower rate applies in case of the ownership of 20% or more of the capital of the company paying the dividend.
12. 5% rate applies if a recipient holds 10% or more ownership in a paying corporation; however, even in case of 10% or more ownership, 10% rate applies if the dividends are paid out of profits subject to tax at a lower rate than the normal corporate tax rate of a country where a payer resides although a recipient holds 10% or more ownership in a paying corporation. In other cases, 15% rate applies.
13. 7.5% rate applies when a recipient of interest income is a bank or a financial institution.
14. Lower rate applies to royalties paid for use of or the right to use industrial, commercial, or scientific equipment.
15. Lower rate applies to royalties paid for any patent, design or model, plan, secret formula or process, or for information concerning industrial, commercial, or scientific experience.
16. Higher rate applies to royalties paid for use of or the right to use cinematography films or tapes for radio or television broadcasting or any copyright of literary or artistic work.
17. 0% rate applies in case of ownership of 10% or more of the capital of the company paying the dividend.
18. Lower rate applies if a recipient is a bank.
19. Lower rate applies to copyright royalties and other like payments in respect of the production or reproduction of any literary, dramatic, musical, or artistic work.
20. 10% rate applies if the term of the loans exceeds seven years.
21. Lower rate applies to the royalties paid for the use of, or the right to use, any copyright of literary, artistic, or scientific work.
22. 15% rate applies to the royalties for any copyright of literary, artistic, or scientific work, including cinematography films.
23. 10% rate applies in cases where the interest is paid in respect of public offering of bonds, debentures, or similar obligations or interest paid by a company that is a resident of the Philippines, registered with the Board of Investment, and engaged in preferred pioneer areas of investment under the investment incentive laws.
24. 10% rate applies in case of royalties paid by a company that is a resident of the Philippines, registered with the Board of Investment, and engaged in preferred pioneer areas of investment under the investment incentives laws.
25. Lower rate applies if a recipient holds 30% or more of the capital of the company paying the dividends and invests not less than 100,000 United States dollars (USD) or equivalent amount of local currencies to the company paying the dividends.
26. 10% rate applies if a beneficial owner of the income is a financial institution (including insurance company) or resident of Thailand who is paid with respect to indebtedness arising as a consequence of a sale on credit by a resident of Thailand of any equipment, merchandise, or services, except where the sale was between persons not dealing with each other at arm’s length.
27. 10% rate applies if the term of the loan exceeds two years.
28. 10% rate applies if ownership is 10% or more and not more than 25% of the gross income of a paying corporation for a preceding tax year consists of interest or dividends.
29. Lower rate applies to royalties for copyrights or rights to produce or reproduce any literary, dramatic, musical, or artistic work as well as royalties received as consideration for the use of, or the right to use, motion picture films, including films and tapes used for radio or television broadcasting.
30. According to the protocol, 5% rate applies for interest on the loans granted by a bank or an insurance company, etc.
31. 5% rate applies when a beneficial owner directly holds 25% or more of the shares of the company paying the dividends. 10% rate applies if a beneficial owner directly owns 10% or more of the shares of the company paying the dividend. In other cases, 15% rate applies.
32. 0% rate applies to royalties for any copyright of literary, artistic, or scientific work, including cinematograph films, and films or tapes for television or radio broadcasting.
33. 5% rate applies to royalties paid for the use of or the right associated with any copyright of literary, artistic, or scientific work, including software, and motion pictures and works on film, tape, or other means of reproduction for use in connection with radio or television broadcasting. 10% rate applies to royalties paid for the use of or the right to use a patent, trademark, design or model, plan, secret formula, or process. 15% rate applies to royalties paid for the use of or the right to use industrial, commercial, or scientific equipment, or for information concerning industrial, commercial, or scientific experience.
34. Generally, 14% rate applies if interest arises from bonds issued by a Korean company or government bodies. Exceptionally, for the interest on foreign currency denominated bonds issued by a Korean government body or a Korean company outside Korea, 0% WHT on the interest paid to a foreign corporation having no PE in Korea may be applicable.
35. 0% rate applies if a recipient of interest income is the government, central bank, etc.
36. Payments for the leasing of industrial, commercial, or scientific equipment, etc. are classified as rental income subject to 2% WHT unless the payment is treated as royalty under an applicable tax treaty.
37. 5% rate applies to royalties in respect of payments of any kind received as a consideration for the use of, or the right to use, any patent, 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. 7.5% rate applies to technical fees.
38. Fees for technical services are subject to the same WHT rate for royalties.
39. Lower rate applies for the payments received as consideration for the furnishing of technical assistance.
40. Agreement between the Korean Mission in Taipei and the Taipei Mission in Korea for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income is effective for the fiscal year starting on or after 1 January 2024 and, in case of WHTs, for payments made on or after 1 January 2024.

If a foreign company is located in a foreign jurisdiction designated by the Minister of Economy & Finance, any Korean-source income of such foreign company will be subject to the domestic withholding rate of 20% regardless of whether or not the foreign company is resident of a treaty country unless it obtains a prior approval from the Korean tax authority for the entitlement to the tax treaty benefits. Currently, only Labuan is designated as such a jurisdiction. The foreign company may claim a refund of any excess WHT paid within five years from the 11th day of the month following the month when the WHT is paid if it proves to the Korean Tax Office that it is entitled to the reduced treaty rates as the substantive and beneficial owner of the income.

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