Permanent establishment issues
Until a clear interpretation of the digital tax is stabilized, it is expected that the permanent establishment issue will continue to remain a main issue in international taxation in Korea.
Tax authority interpretation(2022)
If a foreign corporation does not have a permanent establishment in Korea, the foreign corporation is not obligated to report and pay corporate tax under Articles 60 (1) and 97 (1) of the 「Corporate Tax Act」
Tax authority interpretation(2019)
Under the Korea-Panama tax treaty, whether a domestic permanent establishment is constituted depends on whether the resident in charge of the business of the claiming corporation has been granted important authority by the claiming corporation, whether the business activities conducted in Korea are essential, and whether the business is established with a place of management in Korea. It should be judged by considering whether the activity was performed or not.
Interpretation of tax treaties and Korean tax law
In principle, tax treaties take precedence over domestic tax laws. However, it should be noted that it is not always interpreted that way.
Tax authority interpretation(2019)
Income arising from the transfer of trademark rights registered abroad by a foreign corporation to a Korean corporation shall be interpreted as income generated in Korea in accordance with Article 93, Subparagraph 8 of the 「Corporate Tax Act」
Tax authority interpretation(2022)
The compensation received by a Dutch resident for providing cause analysis consulting services for domestic insurance accidents in the Netherlands is considered ‘personal service income’ and is not subject to domestic taxation in accordance with the 「Income Tax Act」 and the 「Korea-Netherlands Tax Treaty」
Foreign currency exchange service
Until now, it was not clear whether this service was subject to VAT. However, the Korean tax authorities made an interpretation that this service is exempt from VAT.
Tax authority interpretation(2023)
If a company licensed to conduct foreign exchange business under the Foreign Exchange Transactions Act supplies services to a foreign company in the electronic payment agency process, the supply of foreign exchange services is exempt from VAT.
GTI's support partner in Korea
JUDONG OH
Judong is a partner supporting the Korean section of "Global Tax Inside". He was in charge of tax affairs for foreign corporations as a senior manager at one of the Big 4 accounting firms, and is now working as an international tax partner at Daseung Tax Firm.