Korea’s Income Tax Treaty with Hong Kong Became Effective from September 27, 2016


On September 7, 2016, Korea’s National Assembly ratified the income tax treaty with Hong Kong without any change from the original agreement which was signed on July 8, 2014, according to the National Tax Service (“NTS”).


This income tax treaty came into force effective from September 27, 2016 after the ratification was exchanged between the two countries. The taxes covered by the income tax treaty include individual income tax, corporation income tax, local income tax, and special tax for rural development for Korea and includes profits tax, salaries tax and property tax for Hong Kong. The tax treaty provisions will be applicable generally starting from April 1, 2017 in Hong Kong. In Korea, for the taxes withheld, the treaty provisions will be applicable starting from April 1, 2017, while for other taxes, the provisions will become applicable starting from January 1, 2017.


The income tax treaty will serve the purpose of relieving resident individuals and corporations from double taxation as well as preventing offshore tax evasion. The NTS expects to obtain tax information relating to tax evasion such as information on offshore accounts in Hong Kong and other financial information which has not been accessible to the NTS before this income tax treaty came into effect. According to the NTS, it is anticipated that Hong Kong government will provide the NTS with information on the accounts of Korean nationals from 2018 at the earliest. Also, the NTS may obtain access to certain tax information to confirm suspected tax evasion of specific taxpayers during tax audits since the tax treaty provides for the exchange of information which is foreseeably relevant for carrying out the provisions of this Agreement or to the administration or enforcement of the domestic laws of Korea concerning taxes.


The key points of the treaty are summarized in the table below.



Key points (rates below include local income tax):

  • Threshold for permanent establishment
  • More than 12 months in case of building site or construction, assembly or installation project or related supervisory activities
  • Income from immovable property
  • Taxed on the country where such property is situated
  • Profits from international transportation
  • Taxed on the country where the enterprise engaging in international transportation resides
  • Dividends
  • 10% withholding tax if the beneficial owner is a company holding directly at least 25% of the capital of the company paying dividends; or
  • 15% tax for all other cases
  • Interest
  • 10% withholding tax
  • Royalties
  • 10% withholding tax
  • Capital gains
  • If the capital gains arise from the alienation of shares of a company deriving more than 50% of its asset value directly or indirectly from immovable property situated in a country, taxed in the country
  • Taxed in a country of source if the gains arise from the alienation of other property
  • Income from dependent personal services
  • Taxed in the country where such services are performed