Hello from Samdo Accounting Firm’s Foreign Corporate Division!
The tax system for foreign corporations differs from that of domestic corporations, with classification based on the location of the corporation’s headquarters.
Foreign Corporation: A corporation with its headquarters or principal office located abroad (only if there is no actual place of business management in Korea).
Domestic Corporation: A corporation with its headquarters, principal office, or actual place of business management located in Korea.
Foreign corporations are subject to tax obligations only on Korean-sourced income, unlike domestic corporations. Let’s take a closer look at the details.
Classification of Foreign Corporations
A foreign corporation is defined as an entity with its headquarters or principal office located abroad, meeting certain criteria specified by Korean tax law.
Primary Legal Basis for Corporate Taxation
The taxation of foreign corporations is governed by several key laws and treaties, as outlined below:
Law | Description |
Corporate Tax Act | Specifies corporate tax regulations for foreign corporations (Chapter 4, Articles 91–99). Most domestic corporation rules also apply to foreign corporations. |
International Tax Adjustment Act | Covers transfer pricing, thin capitalization, excessive interest deductions, hybrid financial instruments, taxation on retained earnings of specific foreign corporations, and tax cooperation. |
Tax Treaty | Treated on par with domestic laws and takes precedence over Korean tax law if there are differences. Tax treaties set principles for tax allocation, with specific details governed by Korean tax law. |
Special Tax Treatment Control Act | Includes regulations on tax reductions and procedures for foreign-invested enterprises. |
Foreign Investment Promotion Act | Governs investment reporting, registration procedures, support, and post-management regulations for foreign-invested corporations. |
Determining Corporate Taxable Income
To determine whether a foreign corporation’s income is subject to corporate tax, the following steps are taken:
Assess whether the income qualifies as Korean-sourced income.
If it does, verify the taxability under the applicable tax treaty. If there is a discrepancy between the tax treaty and Korean tax law, the tax treaty takes precedence.
For any further assistance or inquiries, feel free to contact us!
Your One-Stop Center for Doing Business in Korea
Justin Seo / USCPA
Email: justinseo@samdoacc.com
Phone: 010-4066-0395
Services:
Establishing Foreign-Invested Corporations / Setting up Foreign Corporate Branches and Liaison Offices in Korea
English Bookkeeping / Tax Filing & Reporting
Monthly Financial Reporting to Headquarters
Payroll Reporting and Fund Disbursement
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