contents
15. Taxation of Foreign Corporation
  a. General
(1)  A foreign corporation is liable to corporation tax only on 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 by a foreign corporation is
assessed and collected in the same manner as that applied to a domestic
corporation. With respect to the income from domestic sources by a foreign
corporation which has no domestic permanent establishment, the full amount of
corporation tax withheld thereon at source is payable to the government.
(2)  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 regarding foreign corporations are
preferentially applied thereto.
  b. Tax Base
(1) Foreign corporation with a domestic permanent establishment
The corporation tax base on income for each business year of a foreign corporation
with a permanent establishment, 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.
(a) An amount of deficits (limited to carried-over deficits incurred in Korea)
carried-over from the business year which began within 5 years before the 
beginning day of each business year, which has not been deducted in the
calculation of income amounts or tax base in each subsequent business year
(b) Non-taxable income under the Corporation Tax Law and other laws
(c) Income from the navigation abroad of vessels or aircraft, provided that the foreign
country in which the head office or main office of the said foreign corporation is
located grants the same tax exemption on vessels or aircraft operated by Korean 
corporations
(2) Foreign corporation without a domestic permanent establishment
(a) Items of income derived by a foreign corporation without a permanent
establishment in Korea shall be subject to tax separately, i.e., the income items are 
not to be aggregated.
(b) Even in the case of a foreign corporation without a domestic permanent
establishment, income from the navigation of vessels or aircraft abroad is, on a 
reciprocal basis, deducted from the income from domestic sources.
  c. Income from Domestic Sources
(1) Interest income
Interest and discount received on bonds or securities (excluding interest on
deposits and profits received from a trust abroad) and other profit from a trust or
non-commercial loan as prescribed by the following sub-paragraphs shall be
regarded as 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 source income.
- Interest paid by a state or local government, a resident, a domestic corporation of
Korea, a foreign corporation's PE in Korea, or a non-resident's PE in Korea
- Interest received from a foreign corporation or a non-resident, of whom 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 received from domestic
corporations or non-corporate entities
(3) Real estate income
Real estate income arising from the transfer, lease, and any other operation involving
real estate in Korea (including rights to the real estate) and mining rights, mining
lease-holding rights or quarrying rights acquired in Korea, except income subject to
capital gains tax
(4) Income from lease of vessels, aircraft
Income arising 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 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, and
professional services(excluding personal service income)
(6) Personal service income
An amount receivable as payment for furnishing or having others utilize personal
services as follows:
(a) services provided by movie and drama actors, musicians, or other public entertainers;
(b) services provided by professional athletes;
(c) services provided by lawyers, certified public accountants, architects, surveyors,
patent lawyers, or other similar professionals;
(d) services provided by persons having expertise or special skills in science and
technology, business management and other similar fields, with the utilization of such
expertise or skills.
(7) Capital gains
Gains on transfer of land, buildings, and other assets located in Korea
(8) Timber income
Income from sale of timber located in Korea
(9) Royalties
Royalties, rent, or any other compensation of similar nature receivable as a
consideration for the use of the following assets or technical expertise within Korea,
or for the right to use such expertise, and income from the transfer of said assets or
technical know-how.
(a) Copyright on academic or artistic works (including films), patent rights,
trademarks rights, designs, models, drawings, secret formulae or processes, films 
and tapes for radio and television broadcasting, and any other similar assets or
rights
(b) Information on industrial, commercial or scientific knowledge, experience, or skill
(c) Industrial, commercial, or scientific machines, equipment, devices and fixtures
(10) Gains from the alienation of securities or shares
Where a foreign shareholder without a permanent establishment in Korea derives
gains from the alienation of marketable securities issued by a domestic corporation
constituting 25% or more of the total voting shares of the company, the gain is subject
to withholding tax. If the shares constitute less than 25% of the total voting shares,
then the gains are not subject to withholding tax. 
(11) Other Income
(a) Insurance claims and compensation for damages receivable in connection with
real estate and other assets located in Korea or with a business operated in Korea
(b)  Assets received as donation from abroad
(c)  Awards, prize money, lottery winnings
(d)  Income from transfer of rights to non-real estate assets
*  Income derived from futures and options by a foreign corporation without a
permanent establishment in Korea shall be exempted from withholding tax.
  d. Calculation of Income from Domestic Sources
(1) 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 regarding the calculation of the tax base of a
domestic corporation mutatis mutandis. In particular:
(a) losses are limited to those which are rationally allocated to an amount of income
and a value of assets related to income from domestic sources;
(b) reserves set aside for retirement allowances are limited to those for employees of
the respective foreign corporation employed in Korea for the businesses operated by
the foreign corporation in Korea, serving permanently at a domestic business place
or at the location of its real estate;
(c) corporation tax, inhabitant tax, fines, minor fines, non-penal fines, penalty tax,
disposition fees for tax in arrears, and public imposts which are not counted in
losses, including those imposed under foreign laws and regulations;
(d) fixed assets eligible for depreciation are limited to fixed assets for the business
owned in Korea, among fixed assets of the respective foreign corporation;
(e) if a domestic business place ceased to exist in a business year before receiving
all amounts due on a deferred payment or installment arrangement, that portion of the
sales or disposition price not yet received, and related costs, shall be included in 
gains and losses, respectively, in said year;
(f) deferred assets are limited to those of the foreign corporation in question, which
are vested either in the business operated in Korea or in the assets owned in Korea;
(g) where a foreign corporation with a domestic business place operates an
international transportation business by vessels or aircraft, income from that in Korea
is calculated based on revenue and expenses incurred in connection with
passengers or cargo originating from Korea, the value of fixed assets for business in
Korea, and any other sufficient factors for determining the degree of contributions by
its domestic business to the income from the transportation business in question;
and
(h) in granting a tax credit to a foreign corporation for loss from disaster, the total
value of assets for business is the total amount said corporation has in Korea.
(2) Foreign corporation without a domestic permanent establishment
Income from domestic sources of a foreign corporation without a domestic business
place in Korea for each business year is computed separately by the type of income
arising from sources in Korea.
  e. Domestic Permanent Establishment
(1) Where a foreign corporation in Korea has a fixed place as described in the following,
it is deemed to have a domestic business place:
(a) branch, sub-branch, office, or any other business office;
(b) store and any other fixed sales place;
(c) workshop, factory, or warehouse;
(d) 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;
(e) a place for providing services through an employee for a period exceeding 6
months in aggregate out of consecutive 12 months; or
(f) a mine, quarry, or any other place of extraction of natural resources.
(2) A fixed place for a domestic business does not include the places such as:
(a) fixed place used by a foreign corporation only for the purchase of assets;
(b) fixed place used by a foreign corporation only for the storage or custody of
non-salable property;
(c) fixed place used by a foreign corporation for advertisement, public relations,
collection and furnishing of information, market surveys and other activities of a
preparatory or auxiliary nature for business performance;
(d) fixed place used by a foreign corporation only for the purpose of having others
process its assets.
(3) If a foreign corporation without a fixed business place in Korea operates a business
through a person in Korea (one who is authorized to conclude contracts on the 
company's 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.
(a) Persons who constantly store assets of foreign corporations and customarily
distribute or deliver them on orders from customers
(b) A broker, general commission agent or other independent agent who conducts
an important part of sales such as the closing of a contract on behalf of a foreign
corporation, as long as the business is entirely or almost entirely devoted to that
foreign corporation
(c) Persons who collect insurance premiums (including reinsurance) on behalf of a
foreign corporation
(d) Foreign corporations indicated above 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 question.
  f. Tax Rates, Return, Payment, Determination, Adjustment, and Collection
(1) 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 or timber income is calculated
by applying the same tax rates as those applicable for a domestic corporation on the
tax base.
(2) Return, payment, determination, adjustment and collection
(a)  With respect to tax return, payment, determination, adjustment, and collection of 
corporation tax on the income for each business year of a foreign corporation with a
domestic business place, real estate income, or timber income, the provisions for a
domestic corporation are also applicable mutatis mutandis.
(b)    Where a foreign corporation that is 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 the approval from the government.
i)  Disasters and any other unavoidable occurrences
ii)  Failure to finalize the settlement of accounts at the head or main office
(c)    The tax payment location of a foreign corporation with a domestic business is
the place of its business or that of relevant real estate within Korea.
  g. Tax Withholding on Foreign Corporation
(1) Withholding Rate
(a)   A person paying an amount of income from domestic sources to foreign
corporations (except foreign corporations having real estate income or timber 
income) not attributed to a domestic business place shall withhold as corporation tax
at the source of income an amount enumerated as follows upon making the payment,
and pay it to the government by the tenth day of the following month.
i)  Business income and lease income of vessels, aircraft, etc.: 2% of the amount payable
ii)  Personal service income: 20% of the amount payable
iii) Interest income, dividend income, royalties, and other income: 25% of the amount payable
iv) Gains from the transfer of securities or shares: 10% of the amount payable
(However, where the acquisition value of securities or shares can be confirmed,
the amount of withholding tax at source is 10% of the amount payable or an 25%
of an amount remaining after deducting the acquisition value from gains,
whichever is less.)
 (2) Tax Withholding by Agent   
(a)    In the case where securities or shares are transferred to a foreign corporation
through a securities company, the securities company shall withhold the
corporation tax and pay it to the government at the residence place of the
domestic corporation (or the domestic business place of the foreign corporation)
which issued the securities or shares.
(b)     If a foreign corporation transfers securities of the same issue whose
acquisition costs are different, a securities company shall compute the acquisition 
value of the securities sold by using the moving average method.
(c)    Any person paying an amount of income from domestic sources (limited to
business income, personal service income, interest income, and royalties) with a
foreign loan to any foreign corporation having no domestic business place shall 
withhold tax at the source at the time the income is paid under the payment terms
of the contract, even in the case where he or she does not directly pay such an
amount of income under the terms of the contract in question.
(d)   Where an agency in Korea of foreign corporation, operating vessels or aircraft
in services abroad that do not come under a domestic business place, pays the 
foreign corporation income from the service of vessels or aircraft navigating
overseas, it shall withhold tax on the income earned by the corporation from
domestic sources.
(e)  Where a person subject to tax withholding pays the corporation tax withheld at
source after the lapse of the payment period, has not paid the tax within the period or
has not withheld the tax at source, he or she shall pay a penalty tax amounting to
10% of the tax amount unpaid or not withheld.
(f)   Where a foreign corporation engages in construction, installation, assembly
projects, or supervisory services in Korea, it is subject to withholding tax for income
arising from these enterprises if the foreign corporation is not registered with the
appropriate tax authority. 
  h. Branch Tax
If the tax treaty between Korea and the country of which the foreign corporation is a
resident allows imposition of a branch profit tax, the tax is imposed on the adjusted
taxable income of the Korean branch of the foreign corporation. This branch profit tax is 
levied in addition to the regular corporation tax under the Corporation Tax Law.
Branch profit tax will be imposed at 25% (or at a reduced rate between 5%-10% as
provided in the treaty) on the adjusted taxable income of a foreign corporation (effective
from the taxable year that begins on January 1, 1996).