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Taxation on a Corporation Established by a Non-resident


Taxation on a Corporation Established by aNon-resident


The income generated from a domestic place ofbusiness of a corporation established by a non-resident is subject to domestictax laws including income tax and corporation tax and international taxtreaties. However, international tax treaties override domestic tax laws.



The Existence of PermanentEstablishment


(1) With permanent establishment


For profits generated from the establishmentdomestic taxation system will be applied as a form of composite income tax andcorporate tax for a non-resident individual and foreign corporation,respectively. Branch offices and liaison offices are regarded as permanentestablishment.



(2) Without permanent establishment


For income from domestic sources anynonresident or foreign corporation is not liable for withholding tax because thewithholding agent pays the tax when the wages are paid. When the withholding agentpays withholding tax he/she should consider whether Korea has rights to imposetaxes on the income on the international tax treaties. Mostly Korea does nothave right to impose taxes on the income of a non-resident who stays in Korealess than 183 days. Some tax treaties grant Korea rights to impose taxes onlywhen income that exceeds a certain amount (USD 3,000 for the US).



(3) What is permanent establishment?


The existence of permanent establishmentdecides tax rates for the domestic income of a non-resident. Domestic permanentestablishment includes:

Branch, office or place of business; a store orother fixed sales places; a place of work, factory or warehouse; a place ofconstruction, site of construction, assembly or installation work, or a place wheresupervision is conducted in relation thereto, which continues to existexceeding six months; any of the following places where services are providedby employees


=> A domestic place ofbusiness includes branches, offices, or business offices, shops and other fixedsales places; workshops, factories, or storages, places used for building,sites for construction, assembly or installation works, or places used forperforming supervisory activities related thereto, for more than six months, aplace where services are provided for at least six months in total during a12-month period in which such services continue to be provided, a place whereservices are provided for not more than six months in total during a 12-monthperiod in which such services continue to be provided, and similar services arecontinuously and repeatedly provided for at least two years, ines, quarries, orplaces for exploiting and gathering marine natural resources and other naturalresources.



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