Guide to Korean branches and subsidiaries

1. Is a Korean subsidiary taxed on worldwide income?

Yes. A Korean subsidiary is taxable on worldwide income.

2. Is a Korean branch taxed on worldwide income?

No. A Korean branch is taxable only on income generated from business carried on in Korea, i.e., Korean-source income attributable to the Korean branch.

3. Can a Korean branch deduct head office charges?

Yes. A Korean branch can deduct head office charges incurred solely and exclusively for the benefit of the Korean branch. Allocation of common head office expenses is also allowed, but the branch must submit a report detailing the allocation computation.

4. Is a Korean branch subject to statutory audit?

No statutory audit is required for a branch. However, if a branch remits profits to its head office, it may be required to submit audited financial statements to the designated bank when the remittance exceeds KRW 100 million or the ratio of net profit to injected operating funds is 100% or more.

5. Is withholding tax imposed on branch profit remittance to the head office?

No withholding tax is imposed on profit remittance to the head office. However, branch profit tax applies for branches of companies located in certain listed countries.

6. Is withholding tax imposed on dividends paid by a Korean subsidiary to foreign shareholders?

Under the Korean domestic tax law, dividends paid by a Korean subsidiary to foreign shareholders are generally subject to withholding tax at 20% plus local income tax at 10% of the withholding tax amount (i.e., an effective rate of 22%). However, a reduced treaty rate may apply depending on the applicable tax treaty and satisfaction of the relevant requirements.