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Tax treaties in Korea

31 Oct 2018

1. Overview

Korea has entered into tax treaties(also called double tax agreements) with many countries around the world to avoid double taxation, prevent tax evasion and promote international trade. Since the first tax treaty was signed in 1970, Korea has entered into tax treaties with 93 countries until now.

Moreover, there have been a lot of changes in the content and format of the tax treaty including the recent signing of the multilateral convention to implement tax treaty related measures to prevent BEPS. We are going to briefly look at the characteristics of the tax treaty in Korea and the status of the tax treaties that Korea has entered into with various countries.

 

2. Main Contents

Tax treaties in Korea are international agreements governed by international law, such as treaties, conventions, pacts and memoranda signed with other countries in relation to taxation on incomes, capital gains and properties.

According to the Constitution of Korea, tax treaties have the same effect as domestic laws in Korea. In case of a conflict between the tax treaty and the domestic law in Korea, the tax treaty is in a special legal position that takes precedence over the domestic laws. In addition, as tax treaties mean the concession of the country’s taxation authority on international transactions under bilateral agreement, the Korean government cannot impose taxes only on the basis of a tax treaty without the provisions of the Korean tax law.

As of the end of October 2018, Korea has entered into tax treaties with 93 countries globally. The chart below shows the reduced tax rates for dividends, interests and royalties under the tax treaties that are currently in force. The applicable domestic withholding tax rate will apply if such a rate is lower than the reduced tax rate under the tax treaty or if there is no tax treaty. For your information, the domestic withholding tax rate varies from 2.2%(including local income tax) to 22%(including local income tax) for certain cross-border payments made to non-resident individuals or corporations without a permanent establishment in Korea (“Non Residents” hereafter), unless exempted or reduced under the relevant tax treaty.

 

 

Dividends (%)

Interest (%)

Royalties (%)

Domestic rates(*1)

 

 

 

   Companies

22

15.4/22

22

   Individuals

22

15.4/22

22

Treaty Countries(*2)

 

 

 

Albania

5/10

10

10

Algeria

5/15

10

2/10

Australia

15

15

15

Austria

5/15

10

2/10

Azerbaijan

7

10

5/10

Bahrain

5/10

5

10

Bangladesh

10/15

10

10

Belarus

5/15

10

5

Belgium

15

10

10

Brazil

10/15

10/15

15/25

Brunei

5/10

10

10

Bulgaria

5/10

10

5

Canada

5/15

10

10

Chile

5/10

5/10/15

5/10/15

China

5/10

10

10

Colombia

5/10

10

10

Croatia

5/10

5

0

Czech Republic

5/10

10

10

Denmark

15

15

10/15

Ecuador

5/10

12

5/12

Egypt

10/15

10/15

15

Estonia

5/10

10

5/10

Ethiopia

5/8

7.5

5

Fiji

10/15

10

10

Finland

10/15

10

10

France

10/15

10

10

Gabon

5/15

10

10

Georgia

5/10

0/10

10

Germany

5/15

10

2/10

Greece

5/15

8

10

Hong Kong

10/15

10

10

Hungary

5/10

0

0

Iceland

5/15

10

10

India

15

10

10

Indonesia

10/15

10

15

Iran

10

10

10

Ireland

10/15

0

0

Israel

5/10/15

0/7.5/10

2/5

Italy

10/15

10

10

Japan

5/15

10

10

Jordan

10

10

10

Kazakhstan

5/15

10

10

Kenya

8/10

12

10

Kuwait

10

10

15

Kyrgyz Republic

5/10

10

5/10

Laos

5/10

10

5

Latvia

5/10

10

5/10

Lithuania

5/10

10

5/10

Luxembourg

10/15

5/10

5/10

Malaysia

10/15

15

10/15

Malta

5/15

10

0

Mexico

0/15

5/15

10

Mongolia

5

5

10

Morocco

5/10

10

5/10

Myanmar

10

10

10/15

Nepal

5/10

10

15

Netherlands

10/15

10/15

10/15

New Zealand

15

10

10

Norway

15

15

10/15

Oman   

5/10

5

8

Pakistan

10/12.5

12.5

10

Panama

5/15

5

3/10

Papua New Guinea

15

10

10

Peru

10

15

10/15

Philippines

10/25

10/15

10/15

Poland  

5/10

10

5

Portugal

10/15

15

10

Qatar    

10

10

5

Romania

7/10

10

7/10

Russia  

5/10

0

5

Saudi Arabia

5/10

5

5/10

Serbia

5/10

10

5/10

Singapore

10/15

10

15

Slovak Republic

5/10

10

0/10

Slovenia

5/15

5

5

South Africa

5/15

10

10

Spain

10/15

10

10

Sri Lanka

10/15

10

10

Sweden

10/15

10/15

10/15

Switzerland

5/15

5/10

5

Tajikistan

5/10

8

10

Thailand

10

10/15

5/10/15

Tunisia

15

12

15

Turkey

15/20

10/15

10

Turkmenistan

10

10

10

Ukraine

5/15

5

5

United Arab Emirates

5/10

10

0

United Kingdom

5/15

10

2/10

United States

10/15

12

10/15

Uruguay

5/15

10

10

Uzbekistan

5/15

5

2/5

Venezuela

5/10

5/10

5/10

Vietnam

10

10

5/15

(*1) Local income tax is included.

(*2) The reduced tax rates for most tax treaties also include 10% of local income tax. However, according to the tax treaty signed with some countries(i.e. United States of America), local income tax is not the subject of the tax treaty. So, in this case, please note that 10% of local income tax would be added separately in the above reduced tax rates.

 

3. Conclusion

As discussed above, Non Residents can apply the reduced tax rate or tax exemption in accordance with tax treaties. However, given the complexity of tax treaties and requirements under the Korean tax law, it is recommendable to discuss with tax experts before applying the reduced tax rate or tax exemption provisions under the tax treaty.


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