Foreign corporations with income derived from sources in Korea are subject to CIT on such income. If the foreign corporation has no ‘domestic place of business’ 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. Any Korean-source income attributable to a domestic fixed place of business of a foreign corporation will be subject to Korean CIT.
For residents of countries having a tax treaty with Korea, reduced WHT rates may apply. An application form must be submitted to the withholding agents in order to apply the treaty rate. If a beneficiary cannot be identified in the application form, the withholding agents should withhold the tax at the non-treaty rate.
For dividends, interest, and royalties, the WHT rates are limited as follows:
Notes
Dividends and interest paid to resident individuals by corporations generally are subject to a 14% WHT rate. In addition to this, there is a resident surtax of 10% on the CIT liability.
In addition to the indicated tax rate, a resident surtax is charged at a rate of 10% of the respective tax rate.
Lower rate applies in case of equity ownership of 10% or more.
10% rate applies to royalties paid for the use of or the right associated with industrial activities.
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.
25% rate applies to royalties associated with the use of trademarks or trademark rights.
5% rate applies in case of equity ownership of 15% or more.
Lower rate applies in case of equity ownership of 25% or more.
10% rate applies if the term of loans exceeds three years.
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.
Lower rate applies in case of equity ownership of 20% or more.
5% rate applies if a recipient holds 10% or more ownership in a paying corporation but, 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. In other cases, 15% rate applies.
7.5% rate applies when a recipient of interest income is a bank or a financial institution.
2% rate applies to royalties paid for use of or the right to use industrial, commercial, or scientific equipment.
10% rate applies if it is for the use of or the right to use industrial, commercial, and scientific equipment or information.
15% rate applies if royalties are 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.
0% rate applies in case of equity ownership of 10% or more.
5% rate applies if a recipient is a bank.
5% rate applies to royalties for use of copyrighted literature and music.
10% rate applies if the term of the loans exceeds seven years.
Lower rate applies if it is for the use of or the right to use a patent, trademark, design, or secret formula, or industrial, commercial, and scientific equipment or information.
10% rate applies in cases of equity ownership of 25% or more, or dividend paid by a resident company engaged in a preferred pioneer area and registered with the Board of Investment.
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.
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.
5% rate applies if a recipient holds 30% or more of equity interest in the amount of at least 100,000 United States dollars (USD).
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.
10% rate applies if the term of the loan exceeds two years.
Lower rate applies to royalties for use of copyrighted literature, music, films, and television or radio broadcasts.
10% rate applies if equity 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.
10% rate applies when a recipient of interest income is a bank or an insurance company.
5% rate applies when a recipient holds 25% or more of equity interest, and 10%, when a recipient holds 10% or more of equity interest. In other cases, 15% rate applies.
5% rate applies to royalties paid for the use of or the right associated with industrial, commercial, or scientific equipment.
0% rate applies to royalties paid for the use of academic rights.
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.
14% rate applies if interest arises from bonds issued by a Korean company or government bodies.
0% rate applies if a recipient of interest income is government, central bank, etc.
5% rate applies to royalties paid for the use of industrial, commercial, or scientific equipment.
Fees arising from rental of industrial, commercial, scientific equipment, etc. are classified as rental income subject to 2% WHT.
Lower rate apply to royalties paid for technical support.
If a foreign company is located in a foreign jurisdiction designated as a tax haven 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. Currently, only Labuan is designated as such a jurisdiction. The foreign company may claim a refund of any excess WHT paid within three years 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. Alternatively, a foreign company may attempt to seek a pre-approval in order to have the treaty benefits apply upfront by making an application to the Commissioner of Taxation.
Reference: Article from taxsummaries.pwc.com written by Alex Joong-Hyun Lee Tax LoS Leader, Samil PwC
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