Tax liabilitiesof a foreign invested company

1) The Corporate Tax Act and provisions of taxtreaties says tax liabilities vary depend on whether a non-resident or aforeign corporation has a domestic place of business. Without a domestic placeof business, usually a withholding agent deduct withholding tax on profitsgenerated in Korea. A non-resident has a withholding tax liability for theincome generated in Korea and when his or her home country has a tax treatywith Korea the tax treaty takes precedence over the Korean tax rate. In mostcases, the tax rate of the tax treaty is lower than that of Korea. Therefore,it is often called a limited tax.

2) A branch office meets requirements of adomestic place of business owned by a non-resident or a foreign corporation.Therefore, profits actually vested to the branch are subject to corporate taxand income tax.

3) Where a foreign corporation provide dividendsto overseas shareholders or headquarters withholding tax should be deductedbefore offering dividends. In this case, tax treaties have precedence over theKorean tax law, therefore tax rates on the tax treaty should be applied. Taxrates on tax treaties are different from a country to country but they arebetween 5 % and 10 or 15%.

4) A branch office bears no tax on dividendsbut it is subject to branch tax.

Branch tax is levied on the taxable income of abranch. The branch tax rate is 20 percent of corporate tax and in this case,too, tax rates on the tax treaty have a precedent over the branch tax. Based onthe principle of reciprocity, where a contracting state does not impose abranch tax on Korean companies in its country, branches of the contractingstate are not subject to branch tax in Korea.

★Brach tax rate is as it follows;

5) Where a foreign branch or a corporation havebusiness transactions with its headquarters and generate profits it is subjectto withholding tax and in this case, the limited tax has precedence over theKorean tax law.

6) Special cases concerning foreign employees

Where a foreign executive officer or employee(excluding daily employed workers begins to first provide labor in the Republicof Korea, the amount of income tax on earned income that the foreign workerreceives in return for his/her labor in the Republic of Korea other thanforeign-capital invested-corporations until the taxable period that ends withinfive years from the date the person first provides labor in the Republic ofKorea, may be calculated by multiplying the relevant earned income by 19/100;Provided, That the amount of income tax on earned income that a foreign workerreceives in return for his/her labor in the regional headquarters until thetaxable period that ends within five years from the date the person firstprovides labor in the Republic of Korea, may be calculated by multiplying therelevant earned income by 19/100.