(1) An American corporation is selling a game onlinein Korea from September 1^st, 2015.

(2) It does not have any domestic place ofbusiness in Korea

(3) It sells games online in Korea through adomestic online market company A.

(4) Should this American corporation paywithholding tax?

III. Review

(1) Withholding tax

The corporation which does not have anydomestic place of business is subject to withholding tax for providingelectronic services to the Republic of Korea from July 1, 2015.

 ☞ The time of supply forelectronic services supplied in the Republic of Korea under shall be the timedescribed in each of the following, whichever comes earlier:

1. When a purchaser takes the supply ofelectronic services from a supplier;

2. When a purchaser completes payment topurchase electronic services.

(2) Business Registration

A corporation without a domestic place ofbusiness is not need business registration but non-residents and foreigncorporations without domestic place of business which provide electronicservices are required to do simplified business registration from July 1^st,2015.

 ☞Simplified business registration

A person who supplies any electronic servicesto consumers in the Republic of Korea limited to a nonresident or foreigncorporation shall have his/her business registered according to the simplifiedmethod prescribed by Presidential Decree , simplified business registration. Insuch cases, the person shall file an application for simplified businessregistration according to the method prescribed by Presidential Decree notlater than 20 days after the commencement date of the business.

 (3) VAT Tax Notification and payment

Any entrepreneur who intends to file avalue-added tax return shall file a preliminary return and a final return ofvalue-added tax by entering the following information via the national taxinformation and communications network:

☞ The entrepreneur's nameand simplified business registration number;

☞ The total value ofsupply of electronic services in the Republic of Korea for the filing period ofreturn, the input tax amount to be deducted, and the amount of tax payable;

IV. Conclusion

The sales revenue of the corporation in Koreais subject to VAT and therefore, it has to file a VAT tax return.

However, corporation A is required to file andpay VAT because it provides services, making it possible for the Americancorporation to have online transactions in Korea. The corporation A should filean application for simplified business registration according to the method notlater than 20 days after the commencement date of the business.

Article 53-2 (Special Cases concerning Supplyof Services, Business Registration, etc. by Foreign Entrepreneurs ProvidingElectronic Services)

(1)      Wherea person referred to in any of the subparagraphs of Article 52 (1) supplies anygame, audio or video file, software, or other services prescribed byPresidential Decree (hereinafter referred to as “electronic services”), whichare capable of being executed in a mobile communication terminal device,computer, etc., to consumers in the Republic of Korea (excluding where servicesare supplied for the taxable business or tax-free business of a person whosebusiness has been registered under Article 8 of this Act, Article 168 (1) ofthe Income Tax Act, or Article 111 (1) of the Corporate Tax Act), theelectronic services shall be deemed supplied in the Republic of Korea.

(2)      Wherea person referred to in any of the subparagraphs of Article 52 (1) supplies anyelectronic services to consumers in the Republic of Korea through any of thefollowing third persons (including any nonresident or foreign corporationreferred to in any of the subparagraphs of Article 52 (1)) (excluding cases towhich special cases concerning the supply of services, etc. by domesticentrepreneurs apply pursuant to Article 53), the third person shall be deemedto supply the electronic services in the Republic of Korea:

1.       Aperson who operates an open market or other equivalent to provide services toenable electronic services transactions through an information andcommunications network, etc.;

2.       Aperson who acts as an intermediary, etc. in electronic services transactions ina manner that collects the price from the purchaser and pays it to the seller;

3.       Aperson prescribed by Presidential Decree, who participates in electronicservices transactions in a manner similar to subparagraph 1 or 2.

(3)      Aperson who supplies any electronic services to consumers in the Republic ofKorea under paragraph (1) or (2) (limited to a nonresident or foreigncorporation referred to in any of the subparagraphs of Article 52 (1)) shallhave his/her business registered according to the simplified method prescribedby Presidential Decree (hereinafter referred to as “simplified businessregistration”). In such cases, the person shall file an application forsimplified business registration according to the method prescribed byPresidential Decree not later than 20 days after the commencement date of thebusiness.

(4)      NotwithstandingArticle 52, a person who has filed for simplified business registration shallmake a return and payment under Article 48 (1) or (2) or 49 according to themethod prescribed by Presidential Decree.

(5)      Noperson who has filed for simplified business registration is entitled to anydeduction from the output tax amount or the amount of tax payable, other thanthe input tax amount to be deducted under Articles 38 and 39, in relation tothe supply of relevant electronic services.

(6)      Othermatters necessary for the place of tax payment of a person who has filed forsimplified business registration, the determination as to the time of supply ofelectronic services, simplified business registration, etc., shall beprescribed by Presidential Decree.

Article 96-2 (Special Cases concerning Supplyof Services, Business Registration, etc. by Foreign Entrepreneurs ProvidingElectronic Services)

(1)      “Game,audio or video file, software, or other services prescribed by PresidentialDecree, which are capable of being executed in a mobile communication terminaldevice, computer, etc.” in Article 53-2 (1) of the Act, means any of thefollowing supplied through an information and communications network as definedin Article 2 (1) 1 of the Act on Promotion of Information and CommunicationsNetwork Utilization and Information Protection, Etc. (hereafter referred to as“information and communications network” in this Article), which is capable ofbeing stored and executed, or being operated in real time without being stored,in a mobile communication terminal device, computer, etc.:

1.       Agame, audio or video file, electronic document, software or other works, whichare manufactured or processed in the form of code, letters, voice, sounds,images, etc. after optical or electronic processing;

2.       Servicesto improve electronic services under subparagraph 1.

(2)      Anyentrepreneur who seeks to file for simplified business registration underArticle 53-2 (3) of the Act, shall do so with the Commissioner of the NationalTax Service by entering the following information via the national taxinformation and communications network:

1.       Thenames, telephone numbers, mail addresses, e-mail addresses, website addressesand other contact information of the entrepreneur and the representative. Insuch cases, if a corporate entrepreneur uses a name, other than the corporatename, in transactions, such name shall be included;

2.       Thecountry of registration, address, registration number and other information onregistration of the entrepreneur in a country in which the place of businesssupplying services, is located;

3.       Thetypes of electronic services supplied, the date the entrepreneur commences abusiness supplying electronic services in the Republic of Korea, and otherinformation necessary for simplified business registration, as prescribed byOrdinance of the Ministry of Strategy and Finance.

(3)      TheCommissioner of the National Tax Service shall allocate a simplified businessregistration number to an entrepreneur who has filed for simplified businessregistration under paragraph (2) and give notice (including via an informationand communications network) thereof to the entrepreneur (including his/her taxmanager, if any).

(4)      Anyentrepreneur who intends to file a value-added tax return under Article 53-2(4) of the Act, shall file a preliminary return and a final return ofvalue-added tax by entering the following information via the national taxinformation and communications network:

1.       Theentrepreneur's name and simplified business registration number;

2.       Thetotal value of supply of electronic services in the Republic of Korea for thefiling period of return, the input tax amount to be deducted, and the amount oftax payable;

3.       Othernecessary information prescribed by Ordinance of the Ministry of Strategy andFinance.

(5)      Thepayment under Article 53-2 (4) of the Act shall be made by depositing into aforeign exchange bank account, as prescribed by the Commissioner of theNational Tax Service.

(6)      NotwithstandingArticle 59, if an entrepreneur who has filed for simplified businessregistration receives any foreign currency or other foreign exchange inexchange for the supply of electronic services in the Republic of Korea, he/shemay use, as a tax base, an amount converted applying the basic exchange rate asat the last day of the taxable period (for a preliminary return and payment,referring to the last day of the preliminary return period). In such cases, theCommissioner of the National Tax Service shall give notice to the entrepreneur(including his/her tax manager, if any) of the basic exchange rate via aninformation and communications network or announce it via the national taxinformation and communications network.

(7)      Thetime of supply for electronic services supplied in the Republic of Korea underArticle 53-2 (6) of the Act, shall be the time described in each of thefollowing, whichever comes earlier:

1.       Whena purchaser takes the supply of electronic services from a supplier;

2.       Whena purchaser completes payment to purchase electronic services.

(8)      Theplace of tax payment for an entrepreneur who has filed for simplified businessregistration under Article 53-2 (6) of the Act, shall be designated by theCommissioner of the National Tax Service in consideration of the efficiency andconvenience of return and payment on the part of the entrepreneur.

[This Article Newly Inserted by PresidentialDecree No. 26071, Feb. 3, 2015]

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