Recent Tax Treaty Developments

The following summarizes the recent tax treaty developments which Korean government has made with other nations.

◎ Georgia-Korea Income Tax Treaty

The Korea-Georgia income tax treaty (which was officially signed on March 31, 2016) came into force on November 17, 2016, more than one and a half years after the treaty was initiated by both governments on June 3, 2015 and more than five years after both governments first started negotiations in April 2011.

The treaty is based on the Organization for Economic Cooperation and Development (“OECD”) Model Tax Convention and includes the following key points.

The taxes covered under the treaty include income tax, corporation tax, special tax for rural development, and local income tax for Korea, and profit tax and income tax for Georgia, respectively.
Construction or installation project will be considered to constitute a permanent establishment if it lasts for more than nine (9) months.
The treaty tax rate on dividends is 5% if the beneficial owner is a company (other than a partnership) which holds directly at least 10% of the capital of the company paying the dividends and 10% in all other cases.
The treaty tax rate on interest and royalty is 10%.

◎ Serbia-Korea Income Tax Treaty

The Korea-Serbia income tax treaty took effect on November 17, 2016 following ratification by the National Assembly on November 3, 2016. Both governments officially signed the treaty on January 22, 2016.

The treaty includes the following key points:

The taxes covered under the treaty include income tax, corporation tax, special tax for rural development, and local income tax for Korea, and corporate income tax and personal income tax for Serbia, respectively.
Building site or construction or installation project will be considered to constitute a permanent establishment if it lasts for more than twelve (12) months.
The treaty tax rate on dividends is 5% if the beneficial owner is a company (other than a partnership) which holds directly at least 25% of the capital of the company paying the dividends and 10% in other cases.
The treaty tax rate on interest is 10%.
The treaty rate on royalty is 5% on payments received as consideration for the use of, or the right to use, any copyright of literary, artistic or scientific work including cinematograph films or films or tapes used for radio or television broadcasting and 10% on payment received as consideration for the use of, or the right to use, any patent, trade mark, design or model, plan, etc.

◎ Turkmenistan-Korea Income Tax Treaty

The Korea-Turkmenistan income tax treaty took effect on November 26, 2016 following ratification by the National Assembly on September 7, 2016. Both governments officially signed the treaty on April 13, 2016.

The treaty includes the following key points:

The taxes covered under the tready include income tax, corporation tax, special tax for rural development, and local income tax for Korea, and tax on profits(income) of juridical persons and tax on income of individuals for Turkmenistan, respectively.
Building site or construction or installation project will be considered to constitute a permanent establishment if it lasts for more than twelve (12) months.
The treaty tax rate on dividends, interest, and royalty is 10%.

◎ Brunei-Korea Income Tax Treaty

The Korea-Brunei income tax treaty signed on December 9, 2014 was ratified by the National Assembly on September 7, 2016 and came into force on October 14, 2016. The treaty is the first agreement of its kind between the two countries. The treaty will apply to the taxes covered from January 1, 2017.

The treaty includes the following key points:

The treaty shall apply to income tax, corporation tax, special tax for rural development, and local income tax for Korea, and income tax and petroleum income tax for Brunei, respectively.
Dividends are taxable at a maximum rate of 5% if the beneficial owner is a company (other than a partnership) that directly holds at least 25 % of the capital of the payer company. In all other cases, a 10% rate applies.
Interest and royalty payments may be taxable at 10% in the country of source.
If a building site or construction or installation project exists for a period of more than twelve (12) months, it would constitute permanent establishment.

◎ Amended Protocol to Poland-Korea Income Tax Treaty

The protocol to amend the income tax treaty between Korea and Poland came into force on October 15, 2016 following the ratification by the National Assembly on September 7, 2016. This is the first amendment of the protocol since the treaty became effective in February 1992. The amended protocol will apply to the taxes covered from January 1, 2017.

Major points of the revised protocol include:

Taxes covered under the treaty are income tax, corporation tax, special tax for rural development, and local income tax for Korea, and personal income tax and corporation tax for Poland, respectively.
The withholding tax rate on royalties will be lowered from 10% to 5%.
Gains derived by a resident of a contracting state from the sale of shares, deriving more than 50% of their value directly or indirectly from immovable property situated in the other contracting state, may be taxed in that other contracting state.

The amended provision on dependent personal services stipulates that remuneration derived by a resident of a contracting state in respect of an employment exercised in the other contracting state shall be taxable only in the first-mentioned state if the recipient is present in the other state for a period or periods not exceeding in the aggregate 183 days in any twelve-month period commencing or ending in the fiscal year concerned (compared with the aggregate 183 days in the fiscal year concerned before the amendment).