Capital Gains Tax for Nonresident

Korea

Ⅰ. Overview

The tax filing and tax payment matters of nonresident on the Capital Gains among the domestic source income is reviewed summarized as below.

Ⅱ. Domestic Source Capital Gains of Nonresidents

1. Scope of Capital Gains of Nonresidents [Article 119-9 of Income Tax Act]

(Generated from domestic area)

1) transfer of land or buildings, rights to real estate and other assets (capital gains on real estate)

2) transfer of stocks issued by domestic corporation, etc.

3) transfer of stocks and etc. issued by foreign corporation (including other securities issued by foreign corporation at domestic place for business).

2. Withholding [Article 156-1-4 of Income Tax Act]

When the acquisitor is an individual, the individual does not have liability to withhold income tax (exempted since Jan. 1, 2010 and the transferor has liability to file and pay the tax).  When the acquisitor is a corporation, the corporation has liability to withhold income tax as withholding agent.

1) Withholding Tax Rate

In case the acquisition value of the assets transferred are not verified:  10% of transfer amount  

In case the acquisition value and transfer expenses of the assets transferred are verified:  The lesser of an amount equivalent to 10% of the amount paid, or an amount equivalent to 20% of gains from transfer of such assets

3. Place for Tax Payment [Article 6-2 of Income Tax Act]

In case nonresident has domestic place for business:  location of domestic place for business shall be the place of payment of income tax of a nonresident

In case nonresident do not have domestic place for business:  place where income is generated from a source in the Republic of Korea shall be the place of payment of income tax of a nonresident

4. Method of Taxation [Article 121-2 of Income Tax Act]

1) When a nonresident has capital gains income, the income tax shall be classified and imposed in the same method as that for a resident.

But for nonresident, the non-taxable rule on the ‘one house for one household' (Article 89-1-3 of Income Tax Act) and ‘special deduction for long-term holding (limit 80%)' (Article 121-2) shall be applied.  Accordingly, the ‘special deduction for long-term holding' (limit 30%) could be applied.

2) Application of the Non-taxable and Reduction/Exemption Rules

The capital gains could be non-taxable when the transfer was made within two years from the date of departure where one house was held as of the date of departure (Article 154-1-2-a and 154-1-2-b of Enforcement Decree of the Income Tax Act)

And also the capital gains could be non-taxable when a person who has resided at a place of self-cultivating farmland, substitute land for farmland and site of stables for livestock for at least 8 years transfers those assets within 2 years from the date of departure (the rules on tax reduction or exemption could be applied according to the Article 66-1 of Enforcement Decree of the Restriction of Special Taxation Act).

3) The payment in installment is acceptable.

4) The taxpayer is liable to pay the Local Income Tax.

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