National Tax Service

Tax News
【September 2014】

☞ The following tax information is translated from Korean for foreign-invested companies, and is not legally binding.


(Q) If a Korean company that has a partnership with a U.S. company pays out dividends to the U.S. company\'s shareholders, is the dividend income subject to a tax rate of 10 percent as prescribed by the United States - Republic of Korea Income Tax Convention?
※ The United States - Republic of Korea Income Tax Convention states that the rate of tax imposed on dividends shall not exceed 10 percent if the recipient is a corporation meeting certain conditions. In other cases, the tax rate shall not exceed 15 percent.

(A) The United States - Republic of Korea Income Tax Convention makes a clear distinction between a corporation and a partnership. Also, in the United States, corporations and partnerships are governed by different domestic laws with respect to their establishment and registration. In this regard, a partnership is not subject to a limited tax rate of 10 percent for dividend income as prescribed by the United States - Republic of Korea Tax Convention.
※ Related law: Article 12 (2) of the United States - Republic of Korea Tax Convention


(Q) If a foreigner who is a short-term resident of Korea is dispatched to a Korean subsidiary of a Japanese company and receives salary income for labor performed in Korea from the Japanese company in Japan, is the income non-taxable in Korea in accordance with Article 3 (1) of the Income Tax Act?

(A) If a foreign resident has had his/her domicile or place of residence in Korea for not more than five years in total from ten years before the end of the relevant taxable period (hereinafter, "short-term resident alien"), the salary income for labor performed in Korea that he/she receives from a foreign company outside Korea constitutes domestic source income. Therefore, Article 3 (1) of the Income Tax Act shall not apply to the salary income and the short-term resident alien is imposed a tax on his/her income in Korea regardless of whether he/she received the salary income within or outside Korea.
※ Related law: Article 3 of the Income Tax Act

☞ For more information, please contact the International Tax Resource Management Office of the National Tax Service (82-2-397-1438~9).