29 12 2017
Types of Korean Visas and Issuing Procedures
Visa means "confirmation of entry permission" by a country that acknowledges that a foreigner can make an entry to the said country, or "act of recommending entry by consul" with respect to an application for an entry permit by a foreigner. A visa is a basic requirement for the entry permission, and those foreigners intending to enter the Republic of Korea must have a visa in principle. Set forth below is the explanation on the visas D-7 and D-8, which are two of the most representative types of visa that are applicable to the foreigners making investments for the purpose of engaging in profit-making activities in Korea.
30 11 2017
Foreigners residing in Korea are required to enroll in national pension just like Korean nationals in accordance with the National Pension Act. As such, foreigners at the age of 18 or more up to 59 must pay national pension contributions if he or she derive employment income and are entitled to pension payments from the age of 61. Further, when foreigners return to their home countries, they can get a lump sum payment for their pension contributions paid to the national pension authority, provided that the prescribed requirements are met. We will review the lump sum refund and the corresponding issues in this article.
30 09 2017
The branch tax is a tax that is additionally applied with branch tax rate on the after-tax income after imposing corporate income tax on branches of foreign corporations.
If a foreign company originally entered into Korea in the form of a subsidiary or joint venture company, corporate income tax is levied on the corporate income, and then corporate income tax or income tax is separately withheld on the dividend income. On the other hand, in case of entering into Korea in the form of branch, if any remaining income after paying corporate tax on its income is repatriated to the head office or the main office of the foreign corporation and then distribute its partial or entire amount to the shareholders of the foreign corporation, then there would be difficulties from the perspective of Korean tax authority that has jurisdiction over the branch of the foreign corporation in terms of collecting taxes associated with the dividend paid as it occurs outside of Korean tax authority’s jurisdiction. As such, the branch tax is adopted in a bid to correct these problems and to maintain the fairness of taxation between a foreign corporation entering into Korea as a local corporation and one entering as a branch office.
18 08 2017
For those multinational corporations that have a business presence (i.e. a legal entity or Permanent Establishment) in Korea, it is worthwhile to get familiarized with the Korean transfer pricing rules and regulations to minimize their tax risks associated with their Korean businesses, especially when the volume of their cross-border transactions is material enough to grab Korean Tax authorities’ attention. The starting point to do this is to grasp the acceptable transfer pricing method in Korea.
The Law for Coordination of International Tax Affairs (the “LCITA”) of Korea stipulates all transfer pricing related rules and regulations and most of its contents is consistent with OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations (the “OECD Guidelines”). Pursuant to the Article 5 of the LCITA, it prescribes the following transfer pricing methods: Comparable Uncontrolled Price (“CUP”) method, Resale Price Method (“RPM”), Cost Plus Method (“CPM”), Profit Split Method (“PSM”), Transactional Net Margin Method (“TNMM”), and other reasonable methods. Among the aforementioned transfer pricing methods, a taxpayer in Korea has to select the most reasonable method based on the availability and reliability of data.
30 04 2017
Anyone who pays out Korean source income (“KSI”) to foreign corporations or non-resident individuals has an obligation to withhold taxes out of the income being paid out pursuant to tax rate stipulated in Corporate Tax Law of Korea (“CTLK”) or Individual Income Tax Law of Korea (“IITLK”), e.g., interest earned or dividend paid being subject to 22% of withholding tax. This being said, however, if the country in which the foreign corporation or non-resident individual is domiciled entered into a tax treaty with Republic of Korea, then reduced tax rate stipulated under the corresponding treaty can be applied to withhold taxes on the KSI.
In order to properly capitalize on this institution, foreign corporations or non-resident individuals should submit the application for entitlement to reduced tax rate on KSI per relevant tax treaties (hereinafter “the application form”) before the payment of the underlying KSI is made and if such obligation of submission is not executed in time by the payee, the party who is obliged to withhold taxes, the payor, should withhold taxes per CTLK and IITLK, not per relevant tax treaties.
Set forth below is the relevant provisions in CTLK and IITLK that is concerned with the foregoing application form.