Witholdings Taxes on Transactions between Korean & Hong Kong Companies

The Republic of Korea and Hong Kong signed a double taxation treaty on July of 2014.  The treaty will come into force, if ratified, by the respective assemblies.  Under Korea Tax Law, the, normal, withholding tax is 22%.  The main purpose of the treaty is to reduce this rate and, also, allow the governments to share information on potential tax evaders.  This double taxation treaty, among other things, includes provisions for: A 15% Withholding Tax on dividends and a 10% Withholding Tax if the company receiving the funds owns a minimum 25% interest in the company remitting the dividends;  A 10% Withholding Tax on most interest and royalties;  A cooperation mechanism to share tax information in order to apprehend Korean tax evaders; and  Taxation on capital gains, only, in the country where the income was earned.  ___Sean Hayes may be contacted at: [email protected] Sean Hayes is co-chair of the Korea

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Foreign Account Tax Compliance Act (FACTA) in Korea

From this month, the Korea Financial Services Commission will require banks to request all to disclose if they are U.S. nationals or U.S. permanent residents when opening a bank account in Korea. Most U.S. taxpayers residing abroad must report, under U.S. law, the details of all foreign financial accounts held and controlled by the taxpayer under FACTA and also Foreign Bank and Financial Accounts (FBAR). Get the picture?  The IRS is watching and now has more tools to watch. More information may be found at: Foreign Account Tax Compliance Act: IRS Website._____Sean Hayes may be contacted at: [email protected] Sean Hayes is co-chair of the Korea Practice Team at IPG Legal. He is the first non-Korean attorney to have worked for the Korean court system (Constitutional Court of Korea) and one of the first non-Koreans to be a regular member of a Korean law faculty. He is ranked, for Korea, as

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Weekly Korean Legal News From International Law Firm – IPG Legal for the Week of June 9, 2014

Weekly Korean Legal News From International Law Firm – IPG Legal for the week of June 9, 2014 Korean Legal News Reported by the Media on the Week of June 9, 2014 Global game makers oppose addiction bill ‘Korean firms should pay more attention to privacy’ Criminal justice in Korea: Interrogations and appointed attorneys< Criminal breach of duty (bae-im) under Korean law Law expert re-elected as judge on UN sea tribunal Most Recent Posts from The Korean Law Blog Samsung Threatens Suit Over Reports of Chairman’s Condition Is the Sewol Tragedy a ‘Korean Self Portrait’? by Tom Coyner Korean Economy Strong this Year According to Moody’s Korea in EU’s Hot Water: Korean Fishing Sanctions by EU Korean Tax Laws on Entertainment Companies in Korea: Overseas Tax Deductions ___ Sean Hayes may be contacted at: [email protected] Sean Hayes is co-chair of the Korea Practice Team at IPG Legal. He is the

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Korean Tax Laws on Entertainment Companies in Korea: Overseas Tax Deductions

Korean Tax Laws have been amended to tighten rules on exemptions for foreign and domestic companies and individuals.  I have reported on a number of this changes in this blog. One change that is having an impact on Entertainment Companies is the reduction in exemptions for companies selling movies and games overseas.  Additional information on this topic can be found at: The Korean Entertainment Law Blog. Before the amendment to this Tax Law, The Korean National Tax Service allowed Korean companies that sold movies or games overseas – tax exemptions on the taxes they paid to government overseas. However, the Korean government no longer grants such benefits; they only allow tax exemptions of 20% – 30% of the taxes that paid overseas. Korea exported entertainment contents worth over 5 trillion won last year.  The Korean Entertainment Industry is crying foul and we, likely, we see more aggressive lobbying by the

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Foreign Tax Incentives to be Cut: 17% Flat Tax Law Revised

Special Income Tax Regime for Foreign Workers under Article 18-2 of the Special Tax Treatment Control Act has been amended.  Now the 17% flat tax will, only, apply to: Employees that are not related parties to their employers.  An exception applies to companies that are authorized to receive tax incentives; and Employees for, only, a 5-year period.  Not happy news for many foreigners in Korea.  _______Sean Hayes may be contacted at: [email protected] Sean Hayes is co-chair of the Korea Practice Team at IPG Legal.  He is the first non-Korean attorney to have worked for the Korean court system (Constitutional Court of Korea) and one of the first non-Koreans to be a regular member of a Korean law faculty. He has, recently, been ranked as one of only two non-Korean attorneys as a Top Attorney working in Korea by AsiaLaw. (c) Sean Hayes – SJ IPG. All Rights reserved.  Do not

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Special 20% Consumption Tax for Designer Bags Bought in Korea Suspended until 2014

A proposed amendment to the Individual Consumption Tax Act  that was to impose a 20% consumption tax on bags with an importation price of over KRW 2million was abandoned by the tax subcommittee of the Korean National Assembly’s Strategy and Financial Committee until 2014.  The tax would have likely hit many of the super luxury brands such as Louis Vuitton, Fendi, Prada and the like.   The main, facial, purpose of the amendment was to harmonize this punitive consumption tax with the punitive consumption taxes imposed on other “luxury” goods such as designer watches, furs, and jewelry.  Hopefully, the committee will consider amending the tax law to scrap all punitive taxes.  These taxes are simply leading more to choose foreign destinations for their luxury good purchases. We are hopeful that the Park Administration will strive to decrease taxes and regulations that are assisting in forcing more Korean and international companies and

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Free Economic Zones to Be Introduced in Korea for Foreign SMEs

In an attempt to spark a resurgence in Foreign Direct Investment in Korea, the Korean government has proposed the development of Mini Free Economic Zones.  These zones are an attempt to attract SMEs that supply parts to Korean companies.  These Mini-FEZs are expected to charge rent far lower than market value in Korea, offer tax incentives, while offering no fee leases for companies that bring into the country technology and invest over USD 1 million in the local economy. The exact details of the plan are not known.  I will update the readers when more details become known. I suspect that the plan will, also, be a benefit to companies already in Korea that are looking to modernize facilities._________ Sean Hayes may be contacted at: [email protected] Sean Hayes is co-chair of the Korea Practice Team at IPG Legal. He is the only non-Korean to have worked as an attorney for

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Korea Legal News for the Week of March 17, 2013

This Week’s Legal News Reported by Media Missouri-Korea $1.2 billion trade agreement French minister-Korea visit US lawmakers-Korea caucus Korea’s vice justice minister resigns but denies allegations of sexual misconduct More U.S. work visas for Koreans on the cards Korea flirts again with Tobin Korea, U.S. officials discuss sanctions against Pyongyang Carter reaffirms U.S. commitment to Korea U.S. promises Korea all military resources Seoul says ready to talk to North on resuming resort tours Most Recent Posts from The Korean Law Blog Personal Data Protection in Korea under the Korean Information and Communictions Network Act 17 Percent Flat Tax for Foreign Nationals Residing in Korea: Korean Tax Amendments for 2013 Pharmaceutical Companies in Korea: Criminal Sanctions and Vicarious Liability Entering into a Joint Venture/Partnership in South Korea?Disputes Between Joint Representative Directors in Korea IBA Employment and Discrimination Law Conference: Amsterdam _____Sean Hayes may be contacted at: [email protected] Sean Hayes is co-chair

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17 Percent Flat Tax for Foreign Nationals Residing in Korea: Korean Tax Amendments for 2013

As we all know, everyone loves to pay taxes.  Korea, over the past decade, has dramatically revised the Korean Tax Code to deal with changes in the nature of Korean business and Korean tax evaders.  Some have criticized the National Tax Services (NTS) for being reactionary.  I do not, completely, agree.  I will be writing about a few amendments over the next couple of weeks that may not be welcomed news to many of the readers, but does reflect the fact that the Korean National Tax Services is a proactive agency that is vigorously attempting to become more transparent in audits and more proactive in the way that it deals with those the NTS considers tax cheats. Amazing your say, kind words coming from my fingers. The NTS is one of the best government agencies to deal with and we encourage businesses to actively engage the NTS with questions and

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Korea May Not Eat Apple’s Double Irish with a Dutch Sandwich Tax Strategy

Apple employs a popular tax reduction scheme called a Double Irish with a Dutch Sandwich.  The scheme is legal under Korean law.  Some media sources, in Korea, have been engaging in a relentless assault on Apple, possibly, motivated by issues that Samsung is having in courts abroad.  I worry that Korea will, again, harm its reputation abroad by engaging in some reactionary measures against Apple and other foreign competitors of Korean conglomerates.  The Lone Star fiasco has done its damage and another handling of a matter in such a fashion may, again, damage the image of Korea as foreign-capital friendly nation. The Double Irish with a Dutch Sandwich is a well-known strategy to reduce the tax liabilities of companies headquartered in nations with high corporate tax rates.  The strategy has allowed Apple to pay low corporate taxes in the United States and most of the countries that it operates in

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Tax Qualified Mergers in Korea: Amended 80% Rule for Triangle Mergers

Up until a recent amendment to the Korean Commercial Code and tax law, in order to qualify for a “tax qualified merger,” at least 80% of the paid consideration must be paid in the stocks of the surviving company to the shareholders of the company being acquired.  This law, thus, precludes the ability to receive this tax benefit in triangle merger situations. A triangle merger is, in short, when a subsidiary owned by the acquiring company (surviving company) merges with the seller.  A recent amendment provides an exception for triangle mergers.  The exception will be available from April of 2012. Recent posts on Korean Tax Law: Korea Tax Tribunal on the Adjustment of Value of Imported Goods and Transfer Pricing Tax Qualified Mergers in Korea Korean Individual Income Tax Rates: Incomes Taxes Rates on the Rise in Korea Korean Corporate Tax Rates:  Corporate Taxes to Rise in Korea Korea Islamic

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European Union Chamber of Commerce No Longer Doing Business in Korea by Tom Coyner

This has not been a good year for foreign chambers of commerce in Korea – particularly for their executive employees. This spring the Korea German Chamber of Commerce & Industry conducted a forensic self audit and found its senior executive employee had been regularly using moneys for his personal use without prior approval of the president and board. That led to that employee’s immediate dismissal. The Korea European Union Chamber of Commerce, often regarded as being more of a private consulting company in that it did absolutely nothing without charging a fee, not to mention the irregularities in not paying value added tax on its magazine advertising, found itself in such tax difficulties for itself and for its top executives’ personal taxes that it had no choice but to shut down. Abusing metaphors, there may be other shoes to drop, given the overall environment. The long unspoken suspicion among long-term

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U.S. Taxation of American Citizens/Permanent Residents Living Abroad

TAXES.  Everyone wants to avoid them and only a few people really know how.  This goes double for US citizens who earn income in China.  This is because the US taxes foreign income as well as income earned within the States.  Even worse, the IRS requires any US person with a financial account overseas to register it with the treasury department, as long as such account has held over $10,000USD at some point during the year. This provision was meant to discourage the use of overseas tax shelters, but they equally apply to US people teaching English in China that have managed to save $10,000USD in their Bank of China account. And speaking from personal experience, the process is complicated because it involves both the IRS and the Treasury department.  Luckily, the filing can be done online, even if it is not particularly simple. For those earning a salary in

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Korea’s Temporary Investment Tax Credit Expired at End of 2011: R&D, Investment & FDI Credits Still Available

The Temporary Investment Tax Credit has expired and other tax liberalization plans have been scrapped  because of a reduction in tax receipts by the government and political issues that have arisen because of the the upcoming elections in Korea.  Please see the list of article below. We suspect, if the conservative Saenari Party controls the National Assembly and the Presidency, after the upcoming elections, the previously promised tax reduction measures will be re-passed by the Korean National Assembly within the next couple of years. Korea has decided to main the Tax Credit for Investment in Facilities and Industrial Equipment.  The credit equals between 3% to 4% of the amount of the investment in industrial equipment and facilities.  An additional 2% to 3% credit is available based on the number of new jobs created by the investment. Additionally, Korea expanded the industries available for investment in free trade zones (only available

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Personal Tax Rates in Korea to Rise in 2012: Individual Income Tax Rates in Korea

As with the corporate tax rate, the government passed a law to decrease tax rates in Korea, however, the government has backpedaled and scrapped the law.   The taxes will increase for individuals with adjusted gross incomes over KRW 88mil/year. 2012 TAX BRACKETS                            TAX RATES                 KRW 12mil or Less                           6.6%KRW 12mil to KRW 46mil               16.5%KRW 46mil to KRW 88mil               26.4%KRW 88mil to KRW 300mil             38.5%OVER KRW 300mil                          41.8% Recent posts on Korean Tax Law: Korea Tax Tribunal on the Adjustment of Value of Imported Goods and Transfer Pricing Tax Qualified Mergers in Korea Korean Individual Income Tax Rates: Incomes Taxes Rates on the Rise in Korea Korean Corporate Tax Rates:  Corporate Taxes to Rise in Korea Korea Islamic Bond Tax Bill is Doomed because of Fundamentalist Christians Tax Exempt Foreign-Denominated Bonds in Korea Coming to an End for

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Amendments to Corporate Tax Rates in Korea for 2012: Korea Corporate Tax Rates in Korea

The Korean government passed a law to decrease the corporate tax rate in Korea, however, the government has backpedaled and has increased the corporate tax rate for companies with earnings over KRW 20bil through a recent amendment to the Korean corporate tax law.  We receive many requests from clients to compare the corporate taxes, general investment environment, and benefits in doing business in free trade zones in Asian countries in order to determine the most feasible location for a regional headquarters.  Increasingly, Korea is becoming less competitive in these type comparisons in most areas that concern multinational companies. TAX BRACKETS                       TAX RATEUnder KRW 200mil                      11%KRW 200 mil to 20bil                   22%Over KRW 20 bil                          24.2% Recent posts on Korean Tax Law: Korea Tax Tribunal on the Adjustment of Value of Imported Goods and Transfer Pricing Tax Qualified Mergers in Korea Korean Individual Income Tax Rates: Incomes Taxes Rates on

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Will Korea Impose a New Capital Gains Tax on Stocks?

The ruling party in Korea, because of recent popularity in bashing the “rich,” has proposed a new tax on capital gains on stocks.  Many of us that assist investment companies in Korea are very afraid that the growing radical liberal minority in Korean society will, through its efforts to gain the presidency, scare away foreigners from the Korean market. Luckily, the government is much more “cautious.” “I am cautious about imposing a tax on capital gains from profits from stock investment,” Finance Minister Bahk Jae-wan was quoted as saying by the local media during parliamentary committee meetings on finance. “The international financial market’s volatility is particularly high at this point in time.” The Finance Minister is being pushed to form a government task force. If the task force is formed, the caution has ended and passion has taken the backseat to reason.  This is not a rare occurrence in Korea. 

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Tax Exempt Foreign-Denominated Bonds in Korea Coming to an End for Holders with Offices in Korea

Some bad news for the Korean bond market.  A law passed in 2011 entitled the Special Tax Treatment Control Law of Korea makes, for many investors, the Korea bond market much less attractive when compared to the bond market of regional rivals. Non-Korean currency denominated bonds issued in 2012 will no longer receive tax exempt status in Korea if they are payable to any company with an establishment in Korea or were issued in Korea.  This and other punitive-like taxes were passed in 2011 as a populist reaction to foreign-currency established companies doing business in Korea that were alleged to not be paying enough taxes in Korea and were gaining too much profits from doing business in Korea.  Many of these targeted companies were responsible for turning around failing companies.  The alleged foreign-friendly Lee Administration has proven not to be as foreign friendly as alleged by the more liberal media

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Korean Tax Tribunal on the Adjustment of Value of Imported Goods and Transfer Pricing

Late last year the Korean Tax Tribunal ruled that the “Customs Value” shall not be effected by a “Transfer Price Adjustment.” The holding will make it more difficult for those importing products into Korea where the product may be paid for by the importer only after the sale of the item. The case involved the import of motorcycles and auto parts by a foreign parent of a local company. The transfer prices were set in 2009 based on exchange rates in 2009. The transfer price was in Euros. Because of currency fluctuations, the company intended to change the transfer price to more adequately reflect market realities and allow for profit by the local company. The agreement between the companies allowed for a retrospective decrease in price based on changed circumstances, since imported items are not immediately sold. Time is needed to sell the goods and the time needed to sell

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Korean Corporate Tax Changes Affecting Businesses in Korea

I hate taxes, as I assume you also do, but my M & A and other corporate clients in Korea may be hating Korean taxes just a little bit less after the recent changes in Korean Corporate Tax Law. First, the Enforcement Decree of the Corporation Tax Act of Korea was amended this year to allow expanded preferential tax treatment in an acquisition of a Korean company. Before the present amendment, a majority/controlling shareholder could avail of “preferential tax treatment” in Korea only if the shareholder in the Korean company retained the shares for at least three fiscal years. The amendment provides an exception for instances when the shareholder is required to dispose of shares because of Korean legal prohibitions in owning the shares. Additionally, the amended Enforcement Decree will allow foreign corporations operating in Korea to deduct the untaxed reserve income from taxable income. The updated Korean Enforcement Decree

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