International Tax_Taxation of Foreign Corporations
A foreign corporation is liable to corporation tax only on the income derived from sources within
Korea. However, no corporation tax is levied on the liquidation income of a foreign corporation.
Corporation tax on income from domestic sources of a foreign corporation is assessed and
collected in the same manner as that applied to domestic corporation.
With respect to the income from domestic sources of a foreign corporation which has no
domestic place of business, the full amount of corporation tax withheld thereon at source is
payable to the government. The provisions of tax laws with respect to calculation of taxable
income and tax amount, assessment, collection tax withholding and reporting for domestic
corporations are applicable mutatis mutandis to foreign corporations having a domestic place of
business. However any special provisions for foreign corporations are preferentially applied
B. Tax Base of Foreign corporation with a domestic business place
The corporation tax base on income for each business year of a foreign corporation with a
business place in Korea, real estate income or timber income in Korea, is the amount of income
for each business year remaining after the successive deduction of the following items from the
gross income from domestic sources:
1. An amount of deficits (limited to carried-over deficits incurred in Korea) carried-over from the
business year which began within5 years before the beginning day of each business year,
which have not been deducted in the calculation of income amounts or tax base in each
subsequent business year.
2. Nontaxable income in accordance with the Corporation Tax Law and other laws.
3. Income accruing from the navigation abroad of vessels or aircraft, provided that the foreign
country in which the head office of main office of the said foreign corporation is located grants
the same tax exemption on the vessels or aircraft operated by Korean corporations.
Foreign corporation without a domestic business place 1. In the case of a foreign corporation
which has no domestic business place, income form domestic sources is the tax base for
2. Even in the case of a foreign corporation without a domestic business place, income from the
navigation of vessels or aircraft abroad is, on the reciprocal basis, deducted from the income
from domestic sources.
C. Income from Domestic Sources
1. Interest and discount amounts accruing from bonds or securities issued by the state or local
autonomous bodies (excluding interest and discount amounts accruing from bonds or securities
issued by a foreign corporation, and interest on deposits and profits from a trust received
abroad) and other profit form a trust or non-commercial loan as prescribed by the following Sub-
Paragraphs shall be regarded as a domestic source income. However, interest paid on funds
borrowed directly by a Korean resident's permanent establishment (PE) in a foreign country or a
Korean corporation for its business outside Korea shall not be counted as a part of the domestic
+ Interest paid by a state or local government, a resident, a domestic corporation of Korea, a
foreign corporations PE in Korea or a non-residents PE in Korea; and
+ Interest received from a foreign corporation or a non-resident, of which a PE in Korea included
the amount of such interest paid of its deductible expenses as necessary expenses effectively
related to its operation.
2. Dividend income - Dividends of profits, distribution of surplus and interest during construction
received from domestic corporations or non-corporate entities.
3. Real estate income-Income accruing from the transfer, lease and any other operation
involving real estate in Korea (including titles to the real estate) and mining rights, mine lease-
holding rights or quarrying rights acquired in Korea, except income subject to capital gins tax.
4. Lease income of vessels, aircraft, etc.-Income accruing from the lease of vessels, aircraft,
registered automobiles or heavy equipment to residents, domestic corporations, or the business
places in Korea of non-residents and foreign corporations.
5. Business income-Income accruing from the livestock industry, forestry, hunting, fisheries,
mining, quarrying, manufacturing, electricity, gas and water services, construction, forwarding
and warehousing, communications, banking and insurance, real estate dealing, services and
free occupations (excluding personal service income).
6. Personal service income-an amount receivable as payment for furnishing or having others
utilize personal services as follows:
+ Services provided by movie and drama actors or actress, musicians, or other public
+ Services provided by professional athletes.
+ Service provided by lawyers, certified public accountants, architects, surveyors, paten lawyers,
or other in free occupations.
+ Service provided by persons having knowledge or special skills in science and technology,
business management and other fields, with the utilization of their knowledge or skills in
7. Capital gains-Gains on transfer of land, building and other assets located in Korea.
8. Timber income-Income accruing from sale of timber located in Korea.
9. Royalty- Royalty, rent or any other compensation of a similar nature receivable a
consideration for the use of the following assets or technical know-how within Korea, or for the
right to use such know-how, and income accruing from the transfer of said assets or technical
+ Copyright on academic or artistic works (including movie films), patent rights, trademark rights,
designs, models, drawings, secret formulae or processes, film and tapes for radio and television
broadcasting and any similar assets or rights.
+ Information on industrial, commercial or scientific knowledge, experience or skill.
+ Industrial, commercial or scientific machines, equipment, devices and fixtures, and other tools
such as transport equipment, etc.
10. Gains accruing from transferring investment securities or shares invested in a domestic
corporation or other securities issued by a domestic corporation or the domestic business place
of a foreign corporation. However, gains accruing from the transfer by a foreign corporation of
domestic listed shares or corporation shares registered with the Korean Securities Dealers
Association shall not be taxed in principle.
11. Other - the following items of income:
1. Insurance money, compensation money or compensation for damages receivable in
connection with real estate and other assets located in Korea or with a business operated in
2. Income accruing from the receipt of donations of assets located in Korea.
3. Income accruing from money and goods or other economic benefits received as prizes by
entering prize contests in Korea.
4. Income accruing from hidden property discovered within the country.
5. Income accruing from the transfer of rights created by license, permission or other similar
disposition under a domestic law or of assets other than real estate.
6. Lottery money and amount accruing from selling horse race, cycling race and boat race
7. Incomes other than the above accruing from business operated in Korea, personal service
provided in Korea or economic benefits receivable in connection with assets in Korea.
D. Calculation of Income from Domestic Sources
Foreign corporation with a domestic business place:
Total amount of gross income from domestic sources for each business year of a foreign
corporation which has a domestic business place or real estate income is calculated by applying
the provisions of the calculation of the tax base of a domestic corporation mutatis mutandis.
Foreign corporation without a domestic business place: The amount of income from domestic
sources for each business year of a foreign corporation having no domestic business place is
an amount of income by type of income from domestic sources.
E.Domestic Business Place
1. Where a foreign corporation has a fixed place described the following items in Korea, it is
deemed to have a domestic business place:
1) Branch, sub-branch, office, or any other business office.
2) Store and any other fixed sales place.
3) Workshop, factory or warehouse.
4) A building site, a location of construction, assembly or installation work or a place for
providing supervision service for such work which exists for more than 6 months, or
5) A place for providing service through an employee for a period exceeding 6 months in
aggregate out of consecutive 12 months.
2. A fixed place for a domestic business does not include those places described as follows:
1) Fixed place used by a foreign corporation only for the purchase of assets.
2) Fixed place used by a foreign corporation only for the storage or custody of non-salable
3) Fixed place used by a foreign corporation for advertisement public relation, collection and
furnishing of information, market survey and other activities of a preparatory or auxiliary nature
for its business performance.
4) Fixed place used by a foreign corporation only for the purpose of having other persons
process its assets.
3. Even though a foreign corporation having no fixed business place in Korea operates a
business by having person in Korea authorized to conclude contracts on its behalf and
habitually exercises that authority, or any other similar persons enumerated under the following,
it is deemed to have a permanent establishment in Korea:
1) Persons who constantly store assets of foreign corporations and customarily distribute or
deliver them on orders from customers. 2) A broker, general commission agent or other
independent agent who conducts important part of sales such as conclusion of contract on
behalf of a foreign corporation so long as their business are wholly or almost wholly devoted
into that foreign corporation. 3) Persons who collect insurance premium or insure risk located in
Korea on behalf of a foreign corporation
4) Foreign corporations referred to under the above items include major stockholders of the
foreign corporation in question, other corporations of which the foreign corporation in question is
a major stockholder, and other persons having special relations with the foreign corporation in
F.Tax Rates, Return, Payment, Determination, Correction and Collection
Tax rates Corporation tax on the income for each business year of a foreign corporation which
has a domestic business place or real estate income is calculated by applying the same tax
rates as those applicable for a domestic corporation on the tax base mutatis mutandis. Return,
payment, determination, correction and collection
1. With respect to return, payment, determination, correction and collection of corporation tax on
the income for each business year of a foreign corporation which has a domestic business
place, real estate income or timber income, the provisions for a domestic corporation are also
applicable mutatis mutandis.
2. Where a foreign corporation required to file a return on its tax base is unable to do so within
the return period due to the following reasons, it may extend the return period with approval
from the government:
+ Disasters and any other unavoidable occurrences.
+ Failure to finalize the settlement of accounts at the head office or the main office.
3. The tax payment place of a foreign corporation with a domestic business place is the location
of its business place or the location of relevant real estate within Korea.
This information is prepared for MAC&Partners to provide foreign users with the basic
understanding of Korean accounting and tax issues. To solve specific accounting and tax matters,
this information needs to be updated and reexamined by a specialized accounting and tax
advisor. No warranty is given as to the correctness of the information it contains and no liability is
accepted for any statement or opinion.
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