PKF Sejong

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30 11 2017

Lumpsum refund of national pension contributions for a foreign national

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

Taxation on Branches of Foreign Corporations in Korea

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.

31 08 2017

Statutory Audit Requirements under the Act on External Audit of Stock Companies

The Act on External Audit of Stock Companies (the “Act”) prescribes that stock companies that meet the statutory audit requirements must have their financial statements audited by intendent auditors. In this article, we will review the statutory audit requirements for stock companies and look into the concerned matters of the Act.

18 08 2017

Acceptable Transfer Pricing Method for Korean tax purpose

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.

31 07 2017

Thin Capitalization Rule in Korea

The methods by which a foreign invested corporation in Korea can attract funds from foreign shareholders can be divided into equity capital and debt capital. The Law for Coordination of International Tax Affairs (hereinafter referred to as the "LCITA") has a regulation clause from taxation perspective, which is Thin Capitalization Rule, in case the capital is raised excessively by borrowing. Set forth below is the detail of such regulation.

30 06 2017

Documents required to be submitted in relation to cross-border intercompany transactions

For those companies that transacts with their foreign related parties, it is required to submit documents that are concerned with the corresponding cross-border related party transactions to Korean tax authorities pursuant to the Law for the Coordination of International Tax Affairs (“LCITA”). Especially, if the annual amount of cross-border transactions with foreign related parties exceeds a certain threshold, applicable domestic companies, including Korean subsidiaries of MNC duly registered in Korea, should submit a Combined Report of International Transaction (the “CRIT”) according to the new regulation of LCITA, which goes into effect starting from FYE 2017. Set forth below is the detail of documents required to be submitted in connection with the intercompany transactions with foreign related parties.

31 05 2017

Permanent Establishment under Korean Tax Law

Permanent establishment (“PE”) is a foreign company’s fixed place of business in local market, which generally gives rise to income or value-added tax liability in a local jurisdiction. Whether a foreign company or a non-resident has a PE in Korea is a very important issue for the taxpayer because the issue of taxation can vary greatly depending on whether a foreign company or a non-resident has a PE in Korea.

30 04 2017

4 Schemes of National Social Insurance

National social insurances mean insurance programs that are required to be enrolled under the relevant laws to help needy community members as result of illness, disability, old age, and unemployment. South Korea has implemented 4 schemes of social insurance, which are: National Pension, National Health Insurance, Employment Insurance and Industrial Accident Compensation Insurance Schemes. Any employers must enrol in the national social insurances for employees and contribute their prescribed portions to the insurance authorities in accordance with the relevant laws. This article will set out the details of the national social insurances that are relevant to both employers and employees.

30 04 2017

Application for Tax Exemption Pursuant to the Relevant Tax Treaty

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.

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