South Korea: New official tax certificates
Further to our TaxFlash T12008, dated 2 March 2012, and effective
1 July 2012
the new official tax forms released by the South Korean government must be submitted by eligible foreign investors in order to enjoy the reduced tax rate under a Double Taxation Treaty (DTT) signed between their country of residence and South Korea.
Note: Application for the Investment Registration Certificate (IRC) and approval from the Financial Supervisory Service are still required to enable foreign investors to hold South Korean listed stocks and listed bonds.
Impact on customers
Beneficial owners who want to apply for a reduced tax treaty rate on interest and dividend income paid on or after 1 July 2012 must complete and submit the new forms to Clearstream Banking1 at the latest by 30 April 2012, regardless of when the income is to be paid. Each of the forms has filing instructions and applicants should read them carefully before completing the applicable forms.
Note: The South Korea Tax Authority accepts only Korean language versions of the application forms (attached to this Announcement). English language versions are provided in the attachment for information purposes only.
We will publish guidance for the use and completion of the new forms in due course.
The forms required to be completed and submitted by beneficial owners investing on their own behalf vary depending on the status of the respective final beneficial owners and on the relief or reclaim procedure, as indicated in the following sections.
Note: There is no quick refund procedure through Clearstream Banking.
For relief at source
Foreign corporations: “Application for Entitlement to Reduced Tax Rate on Domestic Source Income (for Foreign Corporations)”.
Foreign individuals: “Application for the Entitlement to Reduced Tax Rate on Domestic Source Income (for Non-Resident Individuals)”.
Overseas Investment Vehicles (OIVs): “Report of OIV (Form 29-13)” must be completed along with the “Annex to Form 29-13 (Schedule of Beneficial Owners)”:
- In the case of public OIVs, the Report of OIV must be submitted quarterly, based on the end of the quarter so that it can apply for the next three months. Otherwise, the foreign investor will be subject to default maximum tax rate (currently 22%).
- In the case of non-public OIVs, the Report of OIV and the list of beneficial owners must be submitted whenever the list of beneficial owners changes. If there are no changes, the form will be accepted for three years.
If the application form is not provided before income payment date because, for example, the customer is unable to complete the form or positions are uncertified, then, according to the new regulations, the foreign investor will not be able to enjoy the reduced tax rate and they will be subject to maximum default tax rate (currently 22%).
Customers taxed at the default rate of 22% should be aware that this does not preclude the South Korea Tax Authority from, at any time, enquiring or investigating in relation to the past five years’ tax where the foreign investor may have been enjoying the reduced tax rate under a DTT.
For standard refund
Foreign corporations: “Request for Tax Refund by Application of Reduced Tax Rate (for Foreign Corporations)”.
Foreign individuals: “Request for Tax Refund by Application of Reduced Tax Rate (for Non-Resident Individuals)” together with a “Certificate of Tax Residence” is requested by reclaim of withholding tax for foreign individual investors.
Overseas Investment Vehicles (OIVs): Only the beneficial owners will be permitted to proceed with the tax refund and, depending on whether the foreign investor is a corporation or individual, they will need to complete the appropriate “Request for Tax Refund by Application of Reduced Tax Rate”.
Statutory deadline for reclaiming withholding tax
Unless otherwise stipulated in the tax treaty, the statutory deadline for reclaiming withholding tax is three years after the income payment is made.
Validity of documents
Upon signing the form and mentioning the date, the application forms to benefit from the reduced tax rate are, if the details have not unchanged, valid for three years from the date on which they were signed. If the content of the documents submitted has changed, it is Clearstream Banking customers’ responsibility to advise and submit updated and valid documents. However, in the case of Overseas Investment Vehicles (OIVs), forms must be provided every three months.
Deadline
After the introduction of the new regulation on 1 July 2012, IRC card applicants and customers submitting documentation changes must send the required application forms to Clearstream Banking at the latest 10 business days before relevant payment date.
Further information
For further information, please contact the Clearstream Banking1 Tax Help Desk on:
| Luxembourg | Frankfurt | |
| Email: | tax@clearstream.com | tax@clearstream.com |
| Telephone: | +352-243-32835 | +49-(0) 69-2 11-1 3821 |
| Fax: | +352-243-632835 | +49-(0) 69-2 11-61 3821 |
or Clearstream Banking Customer Service or your Relationship Officer.
1. Clearstream Banking refers collectively to Clearstream Banking AG, registered office at 61, Mergenthalerallee, 65760 Eschborn, Germany and registered in the Register B of the Amtsgericht Frankfurt am Main, Germany under number HRB 7500 (CBF) and Clearstream Banking, société anonyme, registered office at 42, avenue John F. Kennedy, L-1855 Luxembourg, and registered with the Luxembourg Register of Commerce and Companies under number B-9248 (CBL).
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