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The foreign companies differ from the foreign invested companies from a Korean tax perspective. Under the Corporation Tax Law of Korea, a corporation having its head office or principal office in Korea shall be considered as a domestic company. Otherwise, it is considered as a foreign company. A foreign invested company is categorized as a domestic company as its head office or principal office is located in Korea.
Especially, the tax incentives for FDI (Foreign Direct Investment) are not applicable to foreign companies, whereas foreign invested companies are eligible for the tax incentive.
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Foreign Invested Company
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Branch Office
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| Governing Law
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Foreign Investment Promotion Law |
Foreign Exchange Transaction Act |
| Nationality
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Korean Company
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Foreign Company
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| Permission
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Head and Branch Offices of Foreign Exchange Banks
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Businesses other than Financial, Insurance, Securities businesses : Head and Branch Offices of Foreign Exchange
Financial, Insurance, Securities businesses : Ministry of Finance and Economy |
| Corporate Tax Liability
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Foreign Invested Companies are taxed on world wide income |
Foreign Companies are taxed on Korean source income
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| Branch Tax
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Not Applicable
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A branch of the company in the following countries is subject to a branch tax :
France, Canada, Australia Indonesia, The Philippines, Brazil, Morocco and Kazakhstan |
| Tax Incentives for FDI
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Applicable
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Not Applicable
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| Remittance of earnings or profits
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Direct overseas remittance of earnings or profits is not allowed. Instead, remittance of dividend is allowed.
A foreign invested company paying dividend is required to withhold taxes at the time of paying dividend
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Direct overseas remittance of earnings or profits is allowed.
A branch office is not required to withhold taxes at the time of remittance of earning or profits
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Source of income
Under the Corporate Income Tax Law, a company with its head or principal office in Korea is deemed as a domestic company and is liable to pay tax on its worldwide income. On the other hand, in case of a foreign company, the tax liabilities of the foreign company are limited to the Korean-source income. As such, it is important for a foreign company to review the sources of its incomes in order to determine scope of its taxation in Korea.
Is there a tax treaty between Korea and the country in which a foreign company is based?
In general, the tax treaty between Korea and the country in which a foreign company is based (hereinafter “Korean Tax Treaty”) takes precedence over the Korean tax laws with regard to taxation on income and on capital. Also, there are certain incomes which are taxed under Korean tax laws but not taxed under Korean Tax Treaty. As such, it is important to review Korean Tax Treaty in determining the scope of taxation for a foreign company.
Types of incomes
In the case of domestic companies, the incomes are taxed at the same tax rate regardless of income type. However, in the case of foreign companies, taxability, method of taxation and application of tax rate would vary depending types of income. As such, it is important for a foreign company to review the types of its incomes.
Is there a permanent establishment (“PE”) in Korea?
There are several differences in taxation of a foreign company depending on whether or not it has a PE in Korea. Thus, it is very important for the foreign company to review whether or not its branch office or liaison office falls under the definition of PE.
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