Taxation on Patent Rights

Date: March 5, 2021

I. Introduction

This post will look into taxation issues on thecases of a resident's transfer or lease of one's patent rights and brokerage ofsales of patent rights.

 

II. Classificationof income

☞Where an individual temporarily sells or leases one's patent rights to others-> Others income

★Provided, That an individual repeatedly sells or leases one's patent rights toothers -> Business income

☞Where an individual arranges sales of copy rights -> Others income

★Provided, That an individual repeatedly arranges sales of copy rights ->Business income

 

III. Computation of Income Amount

☞ Where an individual transfersone's patent rights

-> The date payment is settled, the date theasset is delivered, the date the asset is utilized, or the date the asset makesa profit, whichever occurs first:

☞Where an individual leases or arranges the sales of copy rights

-> The date payment is settled

 

IV. Withholding Tax

Where a withholding agent pays fees fortransfer, lease and brokerage fees 20 percent of the income tax amount shouldbe applied.

 

V. Related Regulations

Article 21 (Other Income)

(1)      Otherincome shall consist of the following incomes, other than interest income,dividend income, business income, wage and salary income, pension income,retirement income, and capital gains:

 

7.  Money and other valuables received inconsideration of transfer or lease of mining rights, fishing rights, industrialproperty rights, and industrial information, industrial secrets, trademarkrights, business rights (including the rights to lease a store prescribed byPresidential Decree), rights incidental to permission to collect earth, sand,and rocks, rights to develop and use underground water, and other assets orrights similar thereto;

 

16.  A brokerage fee on a property right;

 

(2)  The amount of other income shall becalculated by deducting necessary expenses, from the total amount of incomegenerated in the relevant taxable period.

 

 

Article 37(Calculation of Necessary Expenses of Other Income)

 

(1)  When calculating other income, the amount tobe included in necessary expenses shall be as follows:

 

1.  With regard to a refund payable to apurchaser of a horse racing ticket, winner wager ticket, bullfighting matchwager ticket or sports promotion wager ticket pursuant to Article 21 (1) 4, theaggregate of the unit voting of the tickets won purchased by such purchasershall be included in necessary expenses;

 

2. With regard to prizemoney and valuables, etc. under Article 21 (1) 14, the amount inserted intoslot machines, etc. at the time of winning such prize money and valuables, etc.shall be included in necessary expenses.

 

(2)  In cases, other than the following cases, theaggregate amounts commonly deemed expenses corresponding to the total revenuefor the relevant taxable period shall be included in necessary expenses:

 

1.  Where paragraph (1) applies;

 

2.  Where prescribed by President Decree, such ascomputation, etc. of necessary expenses of money and valuables received incompensation for transfer of rights to mining.

 

(3)  With regard to expenses, corresponding to thetotal revenue incurred prior to the relevant taxable period, determined for therelevant taxable period, only the expenses unappropriated as necessary expensesbefore the taxable period shall be deemed necessary expenses for the relevanttaxable period.

 

(4) Article 33 shallapply mutatis mutandis to the amount not to be included in necessary expensesin calculating other income.

 

 

Article 127(Liability for Withholding Taxes)

 

(1)  Any person who pays any of the followingincomes (limited to persons specified by Presidential Decree, such as businessoperators, in cases of a person who pays income specified in subparagraph 3) toa resident or a nonresident in the Republic of Korea, shall withhold income taxfrom such resident or nonresident pursuant to this Section

 

6.  Other income: Provided, That the followingincome shall be excluded:

 

(a)  Income under subparagraph 8;

 

(b)  A penalty for breach of contract or damagesunder Article 21 (1) 10 (only applicable to cases where earnest money isreplaced with a penalty for breach of contract or with damages);

 

(c)  Income under Article 21 (1) 23 or 24;

 

 

Article 129(Withholding Tax Rates)

 

1)  A withholding agent shall withhold income taxat any of the following tax rates (hereinafter referred to as "withholdingtax rate") when it pays the income specified in any subparagraph ofArticle 127 (1)

 

6.  With regard to other income, the tax rateprescribed as follows: Provided, That this shall not apply to cases to whichsubparagraph 8 applies:

 

(a)  Where the amount of income under Article 14(3) 8 (d) and (e) exceeds 300 million won, 30/100 of such excess;

 

d)  With regard to any income other than thosespecified above, 20/100;

 

8.  With regard to service charges prescribed byPresidential Decree, 5/100.

 

 

Article 50 (Date of Receipt of other Income, etc.)

 

1.  Other income specified in Article 21 (1) 7 ofthe Act (excluding other income from leasing an asset or rights): 

The date payment issettled, the date the asset is delivered, the date the asset is utilized, orthe date the asset makes a profit, whichever occurs first: Provided, That,where the amount is not determined though the asset has been delivered, hasbeen utilized, or has made profit before the payment is settled, it shall be thedate of payment;

 

1-2.  Where the down payment replaces the penaltyor indemnity money, among the income specified in Article 21 (1) 10 of theAct:  The date a breach or rescission ofthe contract for other income is fixed;

 

2.  Other income specified in Article 21 (1) 20of the Act: 

The date of thefinal settlement of accounts for the relevant business year of the corporation;

 

 

3.  Other income specified in Article 21 (1) 21of the Act:  The date of receipt otherthan pension;

 

4.  Other incomes in addition to the above:  The date the payment is received.

 

 

Article 87 (Calculation of Necessary Expenses for other Income)

 

1.  In cases of any of the following otherincome, an amount equivalent to 80/100 of an amount received by a residentshall be necessary expenses: Provided, That if necessary expenses actuallyinvolved exceed an amount equivalent to 80/100, such excess shall be alsoincluded in necessary expenses:

 

(a)  Among other income under Article 21 (1) 1 ofthe Act, prize and supplementary prize awarded by a public interest corporationgoverned by the Act on the Establishment and Operation of Public InterestCorporations, with authorization from the competent administrative authority,and prize and supplementary prize received by a winner at a contest where amultiple number of persons compete with each other;

 

(b)  Other income under Article 21 (1) 7, 9, 15,and 19 of the Act;

 

(c)  Damages for delay in moving into a house,among compensation for breach of contract and damages under Article 21 (1) 10of the Act;

 

2.  In cases of other income under Article 21 (1)25 of the Act, an amount equivalent to 80/100 (or 90/100 where the holdingperiod of calligraphic works, paintings, and antiques is at least ten years) ofan amount received by the resident shall be necessary expenses: Provided, That,if necessary expenses actually involved exceed an amount equivalent to 80/100(or 90/100 where the holding period of calligraphic works, paintings, andantiques is at least ten years) of the amount, such excess shall also beincluded in necessary expenses;

 

3.  With regard to a religious person's incomeunder Article 21 (1) 26 of the Act (hereinafter referred to as "religiousperson's income"), the amount calculated as follows, out of the amountthat the religion-related worker received during the relevant taxable period(excluding non-taxable income under subparagraph 5 (h) of Article 12 of theAct; hereafter the same shall apply in this subparagraph), shall be necessaryexpenses: Provided, That, if necessary expenses actually incurred exceed therelevant amount in the following table, such excess shall be also included innecessary expenses:

 

 

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