Debt securities and equities - rates, eligibility, availability of relief etc. - South Korea

22.05.2020

Withholding Tax

Standard rate of withholding tax:

15.4%a / 22%

Trading prerequisite:

Yes

Holding restriction/ requirement:

Yes

a. Please refer to Debt securities below.

Relief or exemption from withholding tax on income from South Korean securities is only available to eligible Investment Registration Certificate (IRC) cardholders.

Holding requirement

In Clearstream Banking, IRC cardholders are non-individuals for domestic South Korean securities.

For Overseas Investment Vehicle “OIV” (non-public OIV) and “OPCIV” (public OIV) with beneficial owners, the IRC cardholders are the “OIV” and the “OPCIV”.

Debt securities

The standard rate of withholding tax on interests from South Korea debt securities is 15.4% in Clearstream Banking.

Note: For debt securities, the withholding tax “amount” (total tax) is calculated based on the actual holding period in reference to Article 98-3 (Special Cases concerning Withholding from Bonds, etc. subject to Withholding Tax of Foreign Corporations) of the “Corporate Tax Act”.
Any person who pays interest, etc. on bonds, etc. subject to withholding tax to a foreign corporation (referring to a foreign corporation subject to Article 98 (1); hereafter the same shall apply in this Article), or purchases (including brokering, arranging, or other cases prescribed by Presidential Decree, but excluding trading of repurchase bonds, etc. or other cases prescribed by Presidential Decree; hereafter the same shall apply in this Article) bonds, etc. from a foreign corporation before receiving the interest, etc. on such bonds, etc. shall withhold the tax in consideration of the holding period of such bonds, etc., as prescribed by Presidential Decree.
The withholding tax “amount” (total tax) is calculated based on the holding period as follows:

  1. Taxable income = trade quantity x interest rate (%) x holding period (number of days) / full period (number of days)
  2. Withholding tax “amount” (total tax) = taxable income x tax rate (%)

The taxable income is truncated as there are no decimal points in Korean currency.

The withholding tax “amount” (total tax) below the tens digit is truncated under the Korean tax law.

Equities

The standard rate of withholding tax on dividends from South Korea equities is 22% in Clearstream Banking.

Availability of relief

The following types of beneficial owner can, provided that the appropriate documentation is submitted to Clearstream Banking, obtain relief at source or exemption from withholding tax on interests from South Korea debt securities and dividends from South Korea equities.

 

Debt securities

Equities

Residents of a Double Taxation Treaty (DTT) country

Treaty rate or 15.4%,
whichever is lower

Treaty rate or 22%,
whichever is lower

Overseas Investment Vehicle “OIV” (non-public OIV) and “OPCIV” (public OIV) with beneficial owners residents of a Double Taxation Treaty (DTT) country and/or tax exempt

Average tax rate according to the residency and/or status of the underlying beneficial owners

Average tax rate according to the residency and/or status of the underlying beneficial owners

Overseas Investment Vehicle “OIV” (non-public) and Overseas Public Collective Investment Vehicle “OPCIV” (public OIV) considered as the beneficiary (substantive owner) of domestic  
source income under the DTT
Treaty rate or 15.4%, whichever is lowerTreaty rate or 22%, whichever is lower

Foreign investors who purchased KTB/MSB on or before 12 November 2010

0%

N/A

Note: A standard refund of withholding tax on interests from South Korea debt securities and on dividends from South Korea equities is not available through Clearstream Banking.

Relief at source

Relief at source or exemption from withholding tax on interests from South Korea debt securities and on dividends from South Korea equities is available through Clearstream Banking for eligible beneficial owners as follows:

Debt securities

Residents of DTT countries

For residents of DTT countries, the applicable rate is the tax treaty rate or 15.4%, whichever is lower:

  • Foreign Corporations (corporation, pension established under the laws of a tax treaty partner country, fund established as a non-profit organisation under the laws of a tax treaty partner country, Overseas Investment Vehicle “OIV” (non-public OIV) and Overseas Public Collective Investment Vehicle “OPCIV” (public OIV) if a Korea-source income is paid through such OIV. The OIV should be recognised as beneficial owner under tax treaty and treated as a single beneficial owner).
    Corporation includes bank, financial company, manufacturing company, etc. incorporated as a company who is the beneficial owner of the Korean income.
  • Tax exempt under the DTT such as Central banks, central and municipal government organisations, sovereign entities.
    Exemption at source might be available to eligible beneficial owners that qualify for the benefit of an exemption of withholding tax in accordance with a DTT between their country of residence and South Korea.

Overseas Investment Vehicle “OIV” (non-public OIV) and Overseas Public Collective Investment Vehicle “OPCIV” (public OIV) with beneficial owners residents in Double Tax Treaty countries and/or tax exempt

OIVs and OPCIVs residents in non-treaty countries might be qualified for a reduced rate of withholding tax in accordance to the country of residence or status of their underlying beneficial owners, meaning in conjunction with the percentage of beneficial owners that are entitled to DTT rates or tax exemption.

Overseas Investment Vehicle “OIV” (non-public) and Overseas Public Collective Investment Vehicle “OPCIV” (public OIV) considered as the beneficiary (substantive owner) of domestic source income under the DTT

OIVs and OPCIVs that are considered as the beneficiary (substantive owner) of domestic source income under the DTT might be qualified for a reduced rate of withholding tax in accordance to their country of residence. Clearstream Banking does not assist in this regard. Please consult your tax advisor for further information.

Foreign investors (only for KTB/MSB purchased on or before 12 November 2010)

For foreign investors, regardless of their residency (includes also non-treaty countries residents), who purchased KTB/MSB on or before 12 November 2010, the applicable rate is 0%.

Equities

Residents of DTT countries

For residents of DTT countries, the applicable rate is the tax treaty rate or 22%, whichever is lower:

  • Foreign Corporations (corporation, pension established under the laws of a tax treaty partner country, fund established as a non-profit organisation under the laws of a tax treaty partner country, Overseas Investment Vehicle “OIV” (non-public OIV) and Overseas Public Collective Investment Vehicle “OPCIV” (public OIV) if a Korea-source income is paid through such OIV. The OIV should be recognised as beneficial owner under tax treaty and treated as a single beneficial owner).
    Corporation includes bank, financial company, manufacturing company, etc. incorporated as a company who is the beneficial owner of the Korean income.
  • Tax exempt under the DTT such as Central banks, central and municipal government organisations, sovereign entities.
    Exemption at source might be available to eligible beneficial owners that qualify for the benefit of an exemption of withholding tax in accordance with a DTT between their country of residence and South Korea.

Overseas Investment Vehicle “OIV” (non-public OIV) and Overseas Public Collective Investment Vehicle “OPCIV” (public OIV) with beneficial owners residents in Double Tax Treaty countries and/or tax exempt

OIVs and OPCIVs residents in non-treaty countries might be qualified for a reduced rate of withholding tax in accordance to the country of residence or status of their underlying beneficial owners, meaning in conjunction with the percentage of beneficial owners that are entitled to DTT rates or tax exemption.

Overseas Investment Vehicle “OIV” (non-public) and Overseas Public Collective Investment Vehicle “OPCIV” (public OIV) considered as the beneficiary (substantive owner) of domestic source income under the DTT

OIVs and OPCIVs that are considered as the beneficiary (substantive owner) of domestic source income under the DTT might be qualified for a reduced rate of withholding tax in accordance to their country of residence. Clearstream Banking does not assist in this regard. Please consult your tax advisor for further information.

Documentation requirements

To obtain relief at source or exemption from withholding tax on interests from South Korea debt securities and on dividends from South Korea equities, the documentation must be provided to Clearstream Banking before the respective deadlines (see “Deadlines for receipt of documents” below).

The tax rates to be applied in case of relief at source or exemption are determined based on the residency or status of the beneficial owner stated in the respective Investment Registration Card (IRC). The procedure and documentation requirements for obtaining an IRC are stated in Clearstream Banking’s Creation Link Guide - South Korea.

The documentation requirements to obtain relief at source or exemption from withholding tax vary according to the status of the beneficial owner, as follows.

Residents of DTT countries

  • Foreign Corporations
    • Application for Entitlement to Reduced Tax Rate on Domestic Source Income for Foreign Corporation (Form No.72-2).
      For pension, fund and OIV, additional evidential documentation is required to be attached on the Application for Entitlement to Reduced Tax Rate on Domestic Source Income for Foreign Corporation (Form No.72-2). The evidential documents should be substantiating the fact that the applicant falls under one of these categories. The documents should be issued within a year by the government or Tax authorities, the exact name and the status of the Applicant should appear on the document. Originals or copies should be submitted.

The forms are valid for three years from the date of submission (that is, the “filing date”) to our local depository (unless there is a change in the beneficial owner’s details).

  • Tax exempt under the DTT such as Central banks, central and municipal government organisations, sovereign entities
    • Application for Non-Taxation-Tax exemption for Corporations on Korean Source Income under the Tax Treaty (Form No.29-2(1)).
    • Certificate of Residence (COR) issued by the competent authority of the beneficial owner’s country of residence. The original COR should be submitted.
    • Copy of documents supporting the tax exempt status (for example, Agreement or Contract).

The Application for Non-Taxation-Tax exemption for Corporations on Korean Source Income under the Tax Treaty should be provided per payment.

The COR and copy of documents supporting the tax exempt status are valid for one fiscal year (unless there is a change in the beneficial owner’s details).

Overseas Investment Vehicle “OIV” (non-public OIV) with beneficial owners residents in DTT countries

  • Report of Overseas Investment Vehicle (OIV) (Form No.29-13). Part 2. “Overseas Investment Vehicle other than OPCIV” should be completed by the OIV.
  • Schedule of Beneficial Owners (based on the Application for Entitlement to Reduced Tax Rate on Domestic Source Income received from the beneficial owners) should be completed by the OIV.
  • Report of Overseas Investment Vehicle received from other Overseas Investment Vehicle (if applicable, report of second OIV). 

An OIV with underlying beneficial owners who are a mix of treaty and non treaty beneficial owners, or only treaty beneficial owners is entitled to a DTT rate in conjunction with the percentage of beneficial owners that are eligible for the DTT rates.

An OIV with underlying beneficial owners who are non treaty beneficial owners will be taxed at the default tax rate.

A beneficial owner who receives Korean source income indirectly through a non-public OIV should submit the appropriate Application for Entitlement to Reduced Tax Rate on Domestic Source Income to the non-public OIV rather than to Clearstream Banking. The non-public OIV is required to collect and retain the form. The non-public OIV uses the information contained in the beneficial owner’s Application for Entitlement to Reduced Tax Rate on Domestic Source to complete the Report of Overseas Investment Vehicle (“OIV Report”) and the Schedule of Beneficial Owners (collectively the “OIV Forms”), both of which must then be submitted to Clearstream Banking (supplemented by the Report of Overseas Investment Vehicle received from other Overseas Investment Vehicle if applicable).

The above mentioned forms have to be submitted once every half-year so that it can apply for the next six months (unless there is a change in the beneficial owner’s details).

The base dates for the purposes of half-year submissions can be 30 June or 31 December (as example).

Overseas Investment Vehicle “OIV” (non-public OIV) with tax exempt beneficial owners

  • Report of Overseas Investment Vehicle (OIV) (Form No.29-13). Part 2. “Overseas Investment Vehicle other than OPCIV” should be completed by the OIV.
  • Schedule of Beneficial Owners should be completed by the OIV.
  • Application for Non-Taxation-Tax exemption for Corporations on Korean Source Income under the Tax Treaty (Form No.29-2(1)) should be completed by the BO.
  • Certificate of Residence (COR) issued by the competent authority of the beneficial owner’s country of residence. The original COR should be submitted.
  • Copy of documents supporting the tax exempt status (for example, Agreement or Contract) of the BO.

The Report of Overseas Investment Vehicle (OIV) (Form No.29-13) and the Schedule of Beneficial Owners have to be submitted once every half-year so that it can apply for the next six months (unless there is a change in the beneficial owner’s details).

The Application for Non-Taxation-Tax exemption for Corporations on Korean Source Income under the Tax Treaty should be provided per payment.

The COR and copy of documents supporting the tax exempt status are valid for one fiscal year (unless there is a change in the beneficial owner’s details).

Overseas Public Collective Investment Vehicle “OPCIV” (public OIV) with beneficial owners residents in DTT countries

  • Report of Overseas Investment Vehicle (OIV) (Form No.29-13). Part 1. “For Overseas Public Collective Investment Vehicle (“OPCIV”) should be completed by the OPCIV.
  • Document which verifies the fund’s registration with or approval by the relevant financial supervisory authority of a country where there is a DTT with South Korea as a collective investment vehicle.
  • Prospectus to evidence the public fund.
  • Report of Overseas Investment Vehicle received from other Overseas Investment Vehicle (if applicable, report of second OIV).

An OPCIV with underlying beneficial owners who are a mix of treaty and non treaty beneficial owners, or only treaty beneficial owners is entitled to a DTT rate in conjunction with the percentage of beneficial owners that are eligible for the DTT rates.

A beneficial owner who receives Korean source income indirectly through a public OIV does not need to submit the Application for Entitlement to Reduced Tax Rate on Domestic Source Income to the public OIV. The public OIV has to complete the Report of Overseas Investment Vehicle (“OIV Report”) which must then be submitted to Clearstream Banking (supplemented by the above document(s) if applicable).

In case of public OIV which their unit holders can change on a daily basis, the Report of Overseas Investment Vehicle has to be submitted by using the information using the information as at the last day of the preceding half-year.

The above mentioned forms have to be submitted once every half-year so that it can apply for the next six months (unless there is a change in the beneficial owner’s details).

The base dates for the purposes of half-year submissions can be 30 June or 31 December (as example).

Overseas Public Collective Investment Vehicle “OPCIV” (public OIV) with tax exempt beneficial owners

  • Application for Non-Taxation-Tax exemption for Corporations on Korean Source Income under the Tax Treaty (Form No.29-2(1)) should be completed by the OPCIV.
  • Certificate of Residence (COR) issued by the competent authority of the OPCIV’s country of residence. The original COR should be submitted.
  • Copy of documents supporting the tax exempt status (for example, Agreement or Contract) of the BO.
  • Report of Overseas Investment Vehicle received from other Overseas Investment Vehicle (if applicable, report of second OIV).

The Application for Non-Taxation-Tax exemption for Corporations on Korean Source Income under the Tax Treaty should be provided per payment.

The COR and copy of documents supporting the tax exempt status are valid for one fiscal year (unless there is a change in the beneficial owner’s details).

Overseas Investment Vehicle “OIV” (non-public) and Overseas Public Collective Investment Vehicle “OPCIV” (public OIV) considered as the beneficiary (substantive owner) of domestic source income under the DTT

  • Application for Entitlement to Reduced Tax Rate on Domestic Source Income for Foreign Corporation (Form No.72-2);
  • Declaration of overseas investment vehicle (B) (Form No.72-5);
  • Certificate of Residence (COR) issued by the competent authority of the country of residence. The original COR should be submitted.
  • Copy of document, which verifies registration with or approval by the relevant financial supervisory authority as a collective investment vehicle;
  • Copy of the prospectus.

The forms are valid for three years from the date of submission (that is, the “filing date”) to our local depository (unless there is a change in the beneficial owner’s details).

The evidence documents should be issued within the year of the date of submission of tax forms.

Additional requirement for Malaysia investors

In case the foreign investor is a tax resident of Malaysia, then such foreign investors will also need to attach the following document in addition to completing the relevant tax application forms mentioned above.

  • Certificate of Tax Residence issued by the competent authority of the beneficial owner’s country of residence. The original Certificate of Tax Residence should be submitted.

The form is valid three years as from the date of issuance by the local tax authorities (unless there is a change in the beneficial owner’s details).

For debt securities only, all foreign investors regardless of their residency who purchased KTB/MSB on or before 12 November 2010 can enjoy tax exemption on interest payments from KTB/MSB

  • Certificate of Residence (COR), the original should be submitted or
  • Certificate of Tax Residence issued by the competent authority of the beneficial owner’s country of residence. The original Certificate of Tax Residence should be submitted.

The forms are valid three years as from the date of issuance by the local tax authorities (unless there is a change in the beneficial owner’s details).

Further additional supporting documentation upon request from the National Tax Service (NTS) or Clearstream’s local depository.

Important notes:

Clearstream Banking will not be responsible for ensuring the accuracy and content of the forms.

The form must be completed accurately by the customer and investor, who must seek external professional tax advice on the application of the Double Taxation Treaties (DTTs) and understand the implications and consequences of inaccurate declarations.

Clearstream Banking does not perform any checks on the information provided.

The only checks performed by Clearstream Banking and/or its depository HSBC upon receipt of documents are confined to non-financial information, such as whether the correct form is filled in, whether the IRC name matches with records etc.

The “filing date” is the date in which our local depository has received the application form that has been completed by the beneficial owner.

The internal processing time taken to arrive at the “Filing Date” from the date of receipt of documents will vary depending on whether there are discrepancies, as outlined above, and other factors.

The intention is to avoid delay and to provide a quick turnaround time. In this regard, Clearstream Banking will also not be responsible should there be discrepancies leading to a delay in arriving at the “Filing Date” and hence the application of the revised tax rate.

Deadlines for receipt of documents

Documentation for relief at source from withholding tax on interests from South Korea debt securities and on dividends from South Korea equities must be received by Clearstream Banking at the latest ten business days before the first income payment date, by 10:00 am CET. In addition, the Application for Non-Taxation-Tax exemption for Corporations on Korean Source Income under the Tax Treaty (Form No 29-2(1)) must be received by Clearstream Banking at the latest ten business days before the relevant income payment date, by 10:00 CET.

Standard refund

A standard refund of withholding tax on interests from South Korea debt securities and on dividends from South Korea equities is not available through Clearstream Banking.