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):