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Taxation on Domestic Source Income of Nonresident
Date: Oct 16, 2020
I. Taxation on domestic source income of nonresident
A nonresident's domestic source of income is subject to taxation such as income tax and corporate tax. However, where there is a tax treaty between Korea and the nation the resident comes from the taxtreaty presides Korea's domestic tax law.
|
With domestic place of business |
Without domestic place of business |
Withholding tax rate |
Interest income |
Global taxation Report payment |
Classified taxation
Final withholding tax |
20% (bond: 14%) |
Dividend income |
20% | ||
Income from rental business including ship rental business |
2% | ||
Business income |
2% | ||
Income from personal service |
20% (3%) | ||
Royalty income |
20% | ||
Income from transferring securities |
10%, 20% | ||
Others income |
20% (15%) | ||
Real estate income |
Global taxation |
- | |
Income from transferring real estate |
Individual: classified taxation corporation: global taxation |
Prepayment of withholding tax |
* Global taxation: global taxation based onincome tax act and corporate tax act
Classified taxation: completion of taxliability by withholding tax (final withholding tax)
Classified taxation: taxation not based on globaltaxation but on classified taxation based on income
II. Income tax, dividend tax, royalty tax (limitedtax rate)
Country with tax treaty |
Country without tax treaty |
Limited tax rate on tax treaty (0% ~15%) |
20% (local tax 10% excl.) |
* If the income above is related or reverted tothe domestic place of business of the non-resident the income should beregarded as the subject of global taxation
* Where local income tax is included in the limited tax rate the computation of income or corporate tax should be [ limited tax rate x 1(1+0.1)]
III. Business Income
Country with tax treaty |
Country without tax treaty |
Without domestic place of business :Tax exemption |
With domestic place of business: 2% withholding tax |
With domestic place of business: global taxation |
IV. Transfer income from securities and real estate
Capital gains on a transfer of any of thefollowing assets or rights: Provided, That this shall be limited where theassets or rights which generate such gains are in the Republic of Korea:
(b) Stocks, etc. of a domestic corporation, where the aggregate of thefollowing values is at least 50/100 of total assets of that domestic corporationas at the start date of the business year in which the relevant assets aretransferred, among stocks, etc. (including depository receipts or preemptiverights issued on the basis of stocks, etc.; hereafter in this Chapter, the sameshall apply) of such domestic corporation, which have not been listed on anysecurities market.
V. Income from real estate
Incomeaccrued from real estate in the Republic of Korea or real estate rights andmining rights, mining concessions or rights to quarry earth, sand, and rocks,each of which is acquired in the Republic of Korea, or the transfer or lease ofrights to use or develop underground water or other management of undergroundwater: Provided, That excluded herefrom shall be capital gains referred to insubparagraph 7;
VI. Personal Service income
Income accrued by rendering personal servicesprescribed by Presidential Decree in the Republic of Korea (including theincome deemed to have accrued in the Republic of Korea according to a taxtreaty by rendering personal services prescribed by Presidential Decree, amongpersonal services rendered abroad).
- In such cases, where the person provided withthe personal services bears expenses prescribed by Presidential Decree,including airfares, in connection with the provision of such personal services,such income means an amount excluding such expenses
VII. Withholding Tax
(1) Where any person pays a foreign corporation the amount of domesticsource income provided for in subparagraphs 1, 2, and 4 through 10 of Article93 (excluding any resident or non-resident who pays the amount of domesticsource income accrued from transfer of real estate, etc. provided for insubparagraph 7 of Article 93) which is not substantially related to thedomestic place of business of the foreign corporation or does not revert to thedomestic place of business of the foreign corporation (including an amount paidto a foreign corporation with no domestic place of business), he/she shallwithhold, as the corporate tax, the following amounts from the income of therelevant foreign corporation for each business year, and pay it at the taxoffice having jurisdiction over the place of tax payment, etc., as prescribedby Presidential Decree, by the tenth day of the month following the month inwhich the date of withholding falls, notwithstanding Article 97: Provided, Thatthe same shall not apply to income provided for in subparagraph 5 of Article93, which is taxable as domestic source business income under the applicabletax treaty:
1. Domestic source interest income in subparagraph 1 of Article 93: Any ofthe following amounts:
(a) Interest income accrued from bonds issued by the State, a localgovernment, or a domestic corporation: 14/100 of the amount paid;
(b) Interest income other than those in item (a): 20/100 of the amount paid;
2. Domestic source dividend income in subparagraph 2 of Article 93: 20/100of the amount paid;
3. Domestic source income accrued from the rental of ships, etc. in subparagraph4 of Article 93 and domestic source business income in subparagraph 5 ofArticle 93 (excluding income taxable as domestic source business income underany tax treaty): 2/100 of the amount paid;
4. Domestic source income accrued by rendering personal services insubparagraph 6 of Article 93: 20/100 of the amount paid: Provided, That 3/100of the amount paid for the income deemed to have accrued in the Republic ofKorea according to a tax treaty by rendering personal services prescribed byPresidential Decree, among personal services rendered abroad;
5. Domestic source income accrued from transfer of real estate, etc. insubparagraph 7 of Article 93: 10/100 of the amount paid: Provided, That wherethe acquisition value and transfer expenses of the amount paid are verified, anamount equivalent to 10/100 of the amount paid or an amount equivalent to20/100 of capital gains on a transfer of such assets, whichever is smaller;
6. Domestic source income accrued from usage in subparagraph 8 of Article93: 20/100 of the amount paid;
7. Domestic source income accrued from transfer of securities insubparagraph 9 of Article 93: 10/100 of the amount paid (where it falls underArticle 92 (2) 2, referring to "arm's length price" in the samesubparagraph; hereinafter the same shall apply): Provided, That where theacquisition value and transfer expenses of the relevant securities are verifiedunder the proviso to Article 92 (2) 1, an amount equivalent to 10/100 of theamount paid, etc., or an amount equivalent to 20/100 of the amount calculatedunder the proviso to the same subparagraph, whichever is smaller;
8. Otherdomestic source income in subparagraph 10 of Article 93: 20/100 of the amountpaid (the amount prescribed by Presidential Decree in cases of the incomespecified in subparagraph 10 (c) of Article 93).
(2) Whenit is deemed urgently necessary as volatility expansion of domestic investmentfunds of foreigners causes unrest in the financial market by hindering thesoundness in the foreign exchange sector and there is or likely to have anydifficulty in performing monetary policies, the tax rate under paragraph (1) onany of the following incomes among the incomes of a foreign corporation may bereduced or may be zero rated, as prescribed by Presidential Decree. In suchcases, the Minister of Strategy and Finance shall report the tax rate to be reducedand the necessity thereof, in advance, to the competent standing committee ofthe National Assembly:
1. Income accruing from State bonds issued under Article 5 (1) of the StateBond Act and bonds prescribed by Presidential Decree (hereafter in thisArticle, referred to as "State bonds, etc.") among the domesticsource income referred to in subparagraph 1 of Article 93;
2. Income accruing from the transfer of State bonds, etc., among thedomestic source income accrued from transfer of securities in subparagraph 9 ofArticle 93.
(3) Deleted.
(4) Where a person liable for withholding fails to withhold corporate taxfrom the income of a foreign corporation for each business year underparagraphs (1) and (5) through (12) or fails to pay the withheld corporate taxby the payment deadline specified under paragraph (1), the head of the taxoffice having jurisdiction over the place of tax payment shall additionallycollect, as corporate tax, the amount referred to in Article 47-5 (1) of thefr
(5) Anyperson who pays domestic source income referred to in subparagraph 1, 5, 6, or8 of Article 93 with foreign loan funds to a foreign corporation with nodomestic place of business shall withhold tax from the relevant income pursuantto paragraph (1) each time he/she pays the relevant income to the foreigncorporation in accordance with the terms of payment stipulated in the contract,although he/she does not directly pay the income in accordance with the termsof payment stipulated in such contract.
(6) Thelocal agency of a foreign corporation operating a ship or aircraft providinginternational service which does not fall under Article 94 (3) shall withholdtax from the amount of domestic source income of the foreign corporation underparagraph (1) when it pays the foreign corporation the income accruing from theship or aircraft providing international service.
(7) Where securities referred to in subparagraph 9 of Article 93 aretransferred through an investment trader or investment broker registered underthe Financial Investment Services and Capital Markets Act, the investmenttrader or investment broker shall withhold tax, as prescribed in paragraph (1):Provided, That where outstanding stocks are transferred when stocks are listedas prescribed in the Financial Investment Services and Capital Markets Act, thecorporation which has issued such stocks shall withhold the tax.
(8) Anyperson who pays a foreign corporation an amount of domestic source incomeaccruing from architectural works, construction, the installation or assemblyof machines, etc., other works, or the provision of any service forsupervision, control, etc. of such works, or any amount of domestic sourceincome earned by providing personal services as referred to in subparagraph 6of Article 93 (including where such income is classified as business incomeunder a tax treaty) shall withhold the tax, as prescribed in paragraph (1),although the relevant income reverts to the domestic place of business:Provided, That the same shall not apply where the relevant domestic place ofbusiness has registered as a business operator under Article 111.
(9) Where domestic source income referred to in paragraph (1) is paid in aforeign country and a person who pays the income has an address, residence,headquarters, main office, or place of business (including the domestic placeof business referred to in Article 120 of the Income Tax Act) in the Republicof Korea, paragraph (1) shall apply, deeming that the income payer has paid therelevant domestic source income in the Republic of Korea.
(10) Where domestic source income referred to in Article 93 is paid to aforeign corporation as a result of an auction under the Civil Execution Act ora public sale under the National Tax Collection Act, the person who distributesproceeds from such auction or public sale shall withhold the tax in accordancewith paragraph (1) from the amount actually paid to the foreign corporation.
(11) Theacts of a person representing or commissioned by a person liable forwithholding provided in paragraphs (1) and (5) through (10) shall be deemed theacts of the principal or his/her delegate within the scope of the delegation orcommission, to which paragraphs (1) and (5) through (10) shall apply.
(12) Where a financial company, etc., acquires, trades or brokers bills ordebt certificates issued by a domestic corporation or makes such transactionson behalf of the financial company, etc., paragraph (11) shall apply, deemingthat the financial company, etc., has the agency or commission relationshipwith the relevant resident.
(13) When any person liable for withholding withholds corporate tax underparagraphs (1) and (5) through (12), he/she shall issue a withholding receiptstating the amount of payment and other necessary matters to the person whoreceives the income, as prescribed by Presidential Decree.
(14) Adomestic corporation which has issued stocks, etc., shall collect thewithholding tax on the domestic source income referred to in subparagraph 10(i) of Article 93 from the foreign-related party who holds such stocks, etc.,at the time prescribed by Presidential Decree.
(15) Detailed methods for withholding underparagraph (14) shall be prescribed by Presidential Decree.
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