A foreign corporation or non-resident individual without a permanent establishment in Korea is generally taxed under the withholding tax regime in Korea.
The withholding tax rates (exclusive of local income tax) applicable to the prescribed categories of income are:
· Interest, dividend, royalty, and other income: 20%
· Business income: 2%
· Income from lease of a ship or aircraft: 2%
· Personal service income: 20%
· Capital gain on disposal of real estate and securities: lower of 10% of sale proceeds or 20% of capital gain
On top of the tax withholding, the withholding agent in Korea (i.e., the income-paying domestic corporation) is required to withhold local income tax from the payment. In this regard, the local income tax withholding is determined as 10% of the tax withholding.
Tax compliance requirements of the withholding tax agent
The withholding tax agent (i.e. income-paying corporation) in Korea is required to declare the details of the income derived by the income recipient corporation in a foreign country in its monthly withholding tax return.
Tax compliance requirements of the income recipient corporation claiming a reduced tax rate under the relevant tax treaty
In case the tax jurisdiction of the foreign corporation has a tax treaty with Korea, the above-mentioned tax rates may be reduced to the tax rates pursuant to the relevant tax treaty. In such case, the foreign corporation must submit an “Application for Entitlement to Reduced Tax Rate on Domestic Source Income (for Foreign Corporation)” [Enforcement Rules of the Corporate Tax Act, Form No. 72-2] to the income-paying corporation in Korea. It is important to note that the form must be submitted to the income-paying corporation (i.e. withholding tax agent) rather than the tax authorities.
The form can be obtained from the tax authority’s website below.
Summary of reduced tax rates under the tax treaties with major trading countries
Country | Interest % (*) | Dividend % | Royalty % |
Australia | 15 | 15 | 15 |
Canada | 10 | 5[1] or 15 | 10 |
China | 10 | 5[2] or 10 | 10 |
France | 10 | 10[3] or 15 | 10 |
Germany | 10 | 5[4] or 15 | 2[5] or 10 |
Hong Kong | 10 | 10[6] or 15 | 10 |
India | 10 | 15 | 10[7] |
Indonesia | 10 | 10[8] or 15 | 15 |
Italy | 10 | 10 [9]or 15 | 10 |
Japan | 10 | 5[10] or 15 | 10 |
Malaysia | 15 | 10[11] or 15 | |
Netherlands | 10[14] or 15 | 10[15] or 15 | |
Poland | 10 | 5[18] or 10 | 10 |
Singapore | 10 | 10[19]or 15 | 5 |
Spain | 10 | 10[20] or 15 | 10 |
United Kingdom | 10 | 5[21] or 15 | 2[22] or 10 |
United States | 12 | 10[23] or 15 | 10[24] or 15 |
Vietnam | 10 | 10 | 5[25] or 10 |
(*) Exemption on interest is not included in the table. Please refer to the applicable tax treaty.
The foreign corporation, which receives the income, from the
[1] The beneficial owner is a company (other than a partnership), which controls directly at least 25% of the voting power of the dividend-paying company.
[2] The beneficial owner is a company (other than a partnership) which holds directly at least 25 % the capital of the dividend-paying company.
[3] The beneficial owner is a company (other than a partnership) which holds directly at least 10% of the capital of the dividend-paying company.
[4] The beneficial owner of a company (other than a partnership) which holds directly at least 25% of the capital of the dividend-paying company.
[5] Royalties paid for the use of, or the right to use, industrial, commercial or scientific equipment.
[6] The beneficial owner is a company (other than a partnership) which holds directly at least 25% of the capital of the dividend-paying company.
[7] Fees for technical services which means consideration for managerial or technical or consultancy services, including the provision of services of technical or other personnel are also included in the article 12 along with royalties.
[8] The beneficial owner is a company (other than a partnership) which holds directly at least 25 per cent of the capital of the dividend-paying company.
[9] The beneficial owner is a company (other than a partnership) which holds directly at least 25 per cent of the capital of the dividend-paying company.
[10] The beneficial owner is a company (other than a partnership) which controls directly or indirectly at least 25% of the voting power in the dividend-paying company.
[11] The beneficial owner is a company which owns directly at least 25% of the capital of the dividend-paying company.
[12] Payments of any kind received as a consideration for the use of, or the right to use, any patent, trade mark, design or model, plan, secret formula or process, copyright of any scientific work, or for the use of, or the right to use, industrial commercial, or scientific equipment, or for information concerning industrial, commercial or scientific experience.
[13] Payment of any kind received as a consideration for the use of, or the right to use, cinematography films, or tapes for radio or television broadcasting, or any copyright of literary or artistic work.
[14] Interest is paid on a loan made for a period of more than 7 years.
[15] The recipient is a company the capital of which is wholly or partly divided into shares and which holds directly at least 25% of the capital of the dividend-paying company.
[16] Payments of any kind received as a consideration for the use of, or the right to use any patent, trademark, design or model, plan, secret formula or process, industrial, commercial or scientific equipment; or information concerning industrial, commercial or scientific experience.
[17] Payments of any kind received as a consideration for the use of, or the right to use any copyright of literary, artistic or scientific work including cinematography films.
[18] The beneficial owner is a company (other than a partnership) which holds directly at least 10 per cent of the capital of the dividend-paying company.
[19] The beneficial owner is a company (other than a partnership) which holds directly at least 25 % of the capital of the dividend-paying corporation.
[20] The beneficial owner is a company (other than a partnership) which holds directly at least 25 per cent of the capital of the dividend-paying company.
[21] The beneficial owner is a company (other than a partnership) which controls directly or indirectly at least 25% of the voting power in the dividend-paying company.
[22] Royalties paid for the use of, or the right to use, industrial, commercial or scientific equipment.
[23] The beneficial owner holds at least 10% of outstanding shares of the voting stock of the dividend paying corporation in Korea during the part of the tax year, and not more than 25% of the gross income of the paying corporation consists of interest or dividends for the prior tax year.
[24] Royalties derived from copyrights, or rights to produce or reproduce any literacy, dramatic, musical or artistic work as well as royalties received as consideration for the use of, or the right to use, motion picture film and tapes used for radio or television broadcasting.
[25] 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.