1.   Overview

The purpose of this review is to verify the withholding taxation matter for a Non-resident on the payment for the export commission made by a domestic corporation.

2.   Fact Relevance

A domestic corporation is to pay an export dealer, who has no domestic business place in Korea, on the dealer's service of export business introduction to a new overseas customer.  Followings will provide whether the withholding tax for a Non-resident should be levied for this case, and the applicable tax rate where necessary.

3.   Review Point

When the payment for a personal service made, it is regarded as a taxable income only when the service is provided in Korea having the income classified as a domestic source income by tax law.  Local authority has no right for taxation when the service is provided overseas.  But if it is the case of the payment for know-how, not for the personal service, the royalty income withholding tax should be imposed.  In this case, the tax rate is required to be applied after a comparison with the withholding tax rate in relevant tax law and the ceiling rate in Tax Treaty.  

4.   Reference Rules and Cases

[Document No.] Sajeon-2015-BeobryungHaeseokKookjo(interpretation of Adjustment of International Taxes Act)-0051 [Date] May 6, 2015

[Subject] Withholding taxation on the payment for the export commission to a Non-resident in Singapore

[Tax Item] Adjustment of International Taxes Act

[Key Point] When a contract is settled between the parties that a resident is to pay the lump-sum export commission in a certain percentage of the export value to a Resident in Singapore upon the services for the export agent service and consulting services for the business development (product development, market development), the judgment on the classification of the tax and whether the withholding tax should be applied is to be made according to the contents in the contract.

○ National Tax Service, Kookchong46017-518, July 28, 1999

The export commission paid to an agent in foreign country who has no domestic place for business by a domestic corporation on the successful export contract shall not be regarded as a domestic source income under Article 119 in Income Tax Act and Article 93 in Corporate Tax Act.  The withholding taxation will not be applied for this payment accordingly.

○ Adjustment of International Taxes Act, Kookil46017-584, Sept. 5, 1997

When a foreign investment corporation, which deals in import of the valves, electricity valves, cylinder and thermoregulator, pays on the receiving information for business consulting, finance, accounting consulting and technical advisory services from the parent company in Switzerland or affiliated company in Singapore,

and the payment on the services is being calculated in a certain percentage of the sales value or purchase value, this is to be regarded as royalty income as stipulated in the Article 12 in Tax Treaty between Korea and Switzerland or between Korea and Singapore as this is a payment for the information or know-how related to industrial, commercial knowledge and experience possessed by the Swiss corporation or Singaporean corporation.      

○ International Tax Resource Management Division of National Tax Service in Korea-550, Nov. 6, 2009  

When a domestic corporation pays an Indo agent, who does not have a domestic place for business, on the agent service commission for the export shipment to India of the product of the domestic corporation, the commission amount to the agent is not regarded as domestic source income as per the Article 119 of Income Tax Act and Article 93 of Corporate Tax Act.   

○ Help Desk Team 2 (on the questions via Letter, Internet, Visit) 0546, Mar 26, 2008

When a Resident in Japan, who does not have domestic business place in Korea, is being paid for the Resident's technical services in Korea, it is required to withhold tax of the 10% (Resident tax included) imposed on the total amount of the payment (living expenses included) as it is regarded as Royalty income as per the Article 119-11 of Income Tax Act and Article 12 of the Tax Treaty between Korea and Japan, if the payment is for the services of industrial, commercial, scientific know-how which have been obtained by a Resident in Japan from his/her experiences in the paper manufacturing field for a long period of time.

But if the technical service of the professional knowledge or skill, which is generally possessed by service providers in same field, is utilized, the payment (fee contingent on success included) is not a taxable amount in Korea as it is regarded as a personal service as per the Article 119-6 of Income Tax Act and Article 14 of Tax Treaty between Korean and Japan in case a Resident stays in Korea for the period under  183 days in the aggregate during the calendar year concerned and does not have a fixed base regularly available as per the Article 14-1 of Tax Treaty between Korea and Japan.

[Document No.] Beobgyukookjo (Rule Adjustment of International Taxes Act) 2012-197 [Date] May 25, 2012

[Subject] Withholding taxation on the payment for the personal service in foreign country by Japanese corporation

[Tax Item] Adjustment of International Taxes Act

[Key Point] When a domestic corporation pays Japanese corporation, who has no domestic place for business, on the personal services which is carried out in Japan, it is not withholding taxable income in Korea as it is not regarded as domestic source income.