Capital Gains
- Best Rates0%
- Domestic Rates 22%
- Treaty Rates0%
- EU Rates-
Domestic
Capital gains from the sale of shares in a private resident company by non-residents are taxed at the lower of 11% of the sale proceeds of the shares or 22% of the gains realised (in both cases, including the 10% inhabitant tax). Gains on the disposal of shares in domestic listed companies are tax exempt, subject to certain conditions, including a maximum ownership of less than 5%.
Effective 17 October 2022, capital gains realised by non-residents from the sale of Korean government bonds and monetary stabilization bonds are exempt from tax.
Capital gains on the disposal of listed Korean shares are exempt from withholding tax if:
- The foreign company holds less than 25% of the shares in the Korean company in the year of disposal and in the 5 preceding years; and
- The transfer of shares takes place through a stock exchange.
Dividend
- Best Rates10%
- Domestic Rates 22%
- Treaty Rates10%
- EU Rates-
Domestic
Tax is withheld at the rate of 22% (20% plus the 10% inhabitant tax) from gross dividends distributed to non-residents.
Treaty
10%:15%The 10% rate applies if equity ownership is 10% or more and not more than 25% of the gross income of the Korean company for the preceding year consists of interest or dividends.
Interest
- Best Rates12%
- Domestic Rates 22%
- Treaty Rates12%
- EU Rates-
Domestic
Tax is withheld at the rate of 22% (20% plus the 10% inhabitant tax) from gross interest paid to non-residents. A rate of 15.4% (including the 10% inhabitant tax) applies to interest on bonds issued by a domestic company. In the case of interest income realized from the sale of domestic bonds, if both the buyer and seller are foreign companies, the securities company may withhold tax.
Interest received pursuant to an investment in eligible foreign currency bonds is exempt from withholding tax. Effective 17 October 2022, an exemption also applies on interest paid to non-residents on local currency denominated government bonds and monetary stabilization bonds.
Treaty
12%
Royalty - Copyright
- Best Rates10%
- Domestic Rates 22%
- Treaty Rates10%
- EU Rates-
Domestic
Tax is withheld at the rate of 22% (20% plus the 10% inhabitant tax) from gross royalties paid to non-residents.
Treaty
10%:15%The 10% rate applies to royalties for use of copyrighted literature, music, films and TV or radio broadcasts.
Royalty - Patent
- Best Rates15%
- Domestic Rates 22%
- Treaty Rates15%
- EU Rates-
Domestic
Tax is withheld at the rate of 22% (20% plus the 10% inhabitant tax) from gross royalties paid to non-residents.
Treaty
10%:15%The 10% rate applies to royalties for use of copyrighted literature, music, films and TV or radio broadcasts.
Royalty - Trademark
- Best Rates15%
- Domestic Rates 22%
- Treaty Rates15%
- EU Rates-
Domestic
Tax is withheld at the rate of 22% (20% plus the 10% inhabitant tax) from gross royalties paid to non-residents.
Treaty
10%:15%The 10% rate applies to royalties for use of copyrighted literature, music, films and TV or radio broadcasts.
Sales
- Best Rates0%
- Domestic Rates 0%
- Treaty Rates0%
- EU Rates-
Domestic
The rate shown is based on physical sales which typically do not attract a withholding tax. Note, however, that more and more countries apply various types of taxes to “digital transactions” and similar. For details of such tax in Korea, Rep of, see Sec. 12.2. in Korea, Rep of Analysis chapter.
Service - Management
- Best Rates0%
- Domestic Rates 0%
- Treaty Rates0%
- EU Rates-
Domestic
No withholding tax under domestic law on payments made by a Korean resident for management services performed outside of Korea by a non resident without a Korean permanent establishment. The withholding rate is 22% (20% plus 10% surcharge) if the management services are performed inside Korea
Treaty
The treaty does not specifically deal with technical, management and similar service fees. In line with the OECD Model, this means that said services do not fall under the royalty article and do not attract the royalty withholding tax provided for under the treaty unless the services represent a minor part of a commingled transaction imparting in essence know-how. In that case, the services would follow the qualification of the principal component of the transaction, and may then attract the royalty withholding tax under the treaty. Otherwise, said services may be taxed in the source country only if the recipient has therein a (services) PE and the fees are attributable to that PE. Note, however, that not all countries would adhere to the OECD standpoint. ORBITAX has by default opted for the OECD position and the withholding tax rate is by default set to zero where the treaty does not specifically deal with technical, management and similar service fees. Where the relevant country has a developed policy regarding the treatment of technical, management and similar service fees and the correlation between those and royalties, ORBITAX has sought to cover this in Sec. 5.6. of the country chapters (Qualification of Specific Income Categories for Tax Purposes). For a technical analysis of the issue of services Vs. royalties, ##HowToReadTreatyLink##. For a quick reference as to whether any of a selection of some 350 widely-used tax treaties specifically addresses technical service fees, ORBITAX has developed a proprietary Treaty Analysis allowing you to quickly and easily capture the most salient features of the relevant treaty. In order to access the Treaty Analysis of a particular bilateral tax treaty, select the pair of countries under the Treaties Tab.
Service - Technical
- Best Rates0%
- Domestic Rates 22%
- Treaty Rates0%
- EU Rates-
Domestic
Tax is withheld at the rate of 22% (20% plus 10% surcharge) on net payments or 10% on gross payments made by a Korean resident for technical services performed outside of Korea by a non resident without a Korean permanent establishment.
Treaty
The treaty does not specifically deal with technical, management and similar service fees. In line with the OECD Model, this means that said services do not fall under the royalty article and do not attract the royalty withholding tax provided for under the treaty unless the services represent a minor part of a commingled transaction imparting in essence know-how. In that case, the services would follow the qualification of the principal component of the transaction, and may then attract the royalty withholding tax under the treaty. Otherwise, said services may be taxed in the source country only if the recipient has therein a (services) PE and the fees are attributable to that PE. Note, however, that not all countries would adhere to the OECD standpoint. ORBITAX has by default opted for the OECD position and the withholding tax rate is by default set to zero where the treaty does not specifically deal with technical, management and similar service fees. Where the relevant country has a developed policy regarding the treatment of technical, management and similar service fees and the correlation between those and royalties, ORBITAX has sought to cover this in Sec. 5.6. of the country chapters (Qualification of Specific Income Categories for Tax Purposes). For a technical analysis of the issue of services Vs. royalties, ##HowToReadTreatyLink##. For a quick reference as to whether any of a selection of some 350 widely-used tax treaties specifically addresses technical service fees, ORBITAX has developed a proprietary Treaty Analysis allowing you to quickly and easily capture the most salient features of the relevant treaty. In order to access the Treaty Analysis of a particular bilateral tax treaty, select the pair of countries under the Treaties Tab.
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AuthorOrbitax
- CountrySouth Korea - United States
- More from Orbitax
- Expert Corner
- Corporate Tax Rates
- Withholding Tax Rates
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I am an expert in international taxation with a focus on the tax laws and regulations of various countries, including South Korea. My expertise stems from years of study, research, and practical experience in the field of tax consultancy and advisory services.
In the realm of international tax, understanding the nuances of capital gains, dividends, interest, royalties, sales, and various service transactions is crucial. Let me break down the concepts mentioned in the provided article:
-
Capital Gains:
- Capital gains tax applies to the profit realized from the sale of capital assets such as stocks, bonds, and real estate.
- In South Korea, the tax rate for capital gains varies depending on the nature of the asset and the residency status of the seller. For instance:
- Capital gains from the sale of shares in a private resident company by non-residents are taxed at a rate lower than domestic rates, typically at 11% of the sale proceeds or 22% of the gains realized.
- Gains on the disposal of shares in domestic listed companies may be tax-exempt under certain conditions.
-
Dividends:
- Dividend tax is levied on income received by shareholders from their investments in companies.
- In South Korea, the withholding tax rate on gross dividends distributed to non-residents is 22%.
- Tax treaty rates may offer reduced rates, typically around 10%.
-
Interest:
- Interest income is generated from investments in bonds, loans, and other interest-bearing instruments.
- South Korea imposes a withholding tax rate of 22% on gross interest paid to non-residents.
- Certain exemptions may apply to interest income from specific types of bonds.
-
Royalties:
- Royalties are payments made for the use of intellectual property such as patents, copyrights, and trademarks.
- South Korea withholds tax at a rate of 22% on gross royalties paid to non-residents.
- Tax treaty rates may lower the withholding tax, typically to 10% or 15%.
-
Sales:
- Sales transactions typically do not attract withholding tax, especially physical sales.
- However, digital transactions may be subject to various taxes depending on the jurisdiction.
-
Service Fees (Management and Technical):
- Service fees for management and technical services may be subject to withholding tax.
- The rates and tax treatment depend on the nature of the services, the residency of the service provider, and any applicable tax treaties.
Understanding these tax concepts is essential for businesses and individuals engaging in cross-border transactions and investments. It helps optimize tax planning strategies and ensures compliance with relevant tax laws and regulations, fostering smooth and efficient international business operations.
