General information – types of securities, deadlines, other market specifics – South Korea
Types of securities eligible in Clearstream Banking
The eligible securities issued in South Korea are as follows:
- Debt securities:
- Debt securities listed on the Korea Stock Exchange (KSE);
- Debt securities designated as eligible in the Korea Securities Depository (KSD-eligible), including Korean Treasury Bonds (KTBs) and Monetary Stabilisation Bonds (MSBs).
- Equities:
- Equities listed on the KSE;
- Equities listed on the Korea Securities Dealers Association Automated Quotation (KOSDAQ) system;
- Equities designated as KSD-eligible.
Types of beneficial owner
The types of eligible beneficial owner recognised for tax purposes in South Korea are as follows:
Residents of a Double Taxation Treaty (DTT) country
Beneficial owners that qualify for the benefit of a reduced rate of withholding tax in accordance with a Double Taxation Treaty (DTT) between their country of residence and South Korea are eligible to obtain relief at source.
- 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) recognised as beneficial owner under tax treaty treated as a single beneficial owner). Corporation includes banks, financial companies, manufacturing companies, 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) treated as beneficial owner in accordance with the Corporate Tax Act
In order to be treated as beneficial owner in accordance with the Corporate Tax Act, an OIV or OPCIV should meet the two conditions below:
- The OIV or OPCIV is liable to tax in the country where the OIV was established under the tax treaty between Korea and its country of establishment, and
- The OIV or OPCIV should meet the requirements to be eligible for non-taxation, tax exemption and reduced tax rates under the tax treaty between Korea and its country of establishment with respect to domestic source income.
Clearstream Banking does not assist in this regard. Please consult your tax advisor for further information.
OIVs and OPCIVs treated as beneficial owner in accordance with the Corporate Tax Act might be qualified for a reduced rate of withholding tax in accordance to their country of residence.
All foreign investors regardless of their residency, who purchased KTB/MSB on or before 12 November 2010
These investors can enjoy tax exemption on interest payments from KTB/MSB if the necessary documents are provided to Clearstream Banking.
Non-residents and foreign investors who purchased KTB/MSB on or after 1 January 2023
These investors can enjoy tax exemption on income payments from KTB/MSB if the necessary documents are provided to Clearstream Banking.
Holding restriction
South Korea securities may not be held in Clearstream Banking on behalf of beneficial owners that are South Korea residents for tax purposes.
Clients are responsible for ensuring compliance with this restriction.
Holding requirement
In Clearstream Banking, IRC or LEI holders are non-individuals for domestic South Korean securities.
For Overseas Investment Vehicles, “OIV” (non-public OIV) and “OPCIV” (public OIV) with beneficial owners, the IRC or LEI holders are the “OIV” and the “OPCIV”.
Trading prerequisite
In order to access the South Korean market, Clearstream Banking clients must be in possession of an Investment Registration Certificate (IRC) or Legal Entity Identifier (LEI).
Korea is a beneficial owner market, which means that the investment registration certificate (IRC) or Legal Entity Identifier (LEI) must be obtained in the name of the foreign investor who benefits from the South Korea-sourced income. This rule is based on Article 6-10 of the Supervisory Regulation on Financial Investment Businesses enacted by the Financial Supervisory Commission. In Clearstream Banking, foreign investors who benefit from the South Korea-domestic sourced income are non-individuals.
The procedure and documentation requirements for obtaining an IRC or a LEI are provided in Clearstream Banking's Settlement Services - South Korea.
Disclosure requirements for depository receipt holders
As of 1 December 2012, in order to benefit from the reduced rate of withholding tax provided for under the terms of a Double Taxation Treaty (DTT) with South Korea, all clients holding Korean American and Global Depository Receipts (ADRs and GDRs) are required to disclose the name, complete street address, city, postal code, country of residence and personal identification (ID) number of each respective beneficial owner.
Personal identification (ID) number
The personal ID number to be provided depends on the beneficial owner’s country of residence, as follows:
- In jurisdictions such as the U.S.A., where a Taxpayer Identification Number (“TIN”), such as an SSN or EIN, is issued, the TIN is the number that must be provided as the personal ID number.
- For jurisdictions such as Japan, where TINs are not issued, a valid personal ID number must be used in place of a TIN.
For these jurisdictions, valid personal ID numbers include, but are not limited to, (for individuals) date of birth, passport number, driver’s license number, and (for entities) resident registration number and date of establishment or date of registration.
In addition, entities that have no legal or fiscal personality (such as partnerships, trusts, Regulated Investment Companies (RICs) and limited liability companies, with the exception of incorporated funds - for example, Mutual Funds, Pension Funds) are required to disclose their underlying beneficial owners.
Entitlement basis
Entitlement to benefits under a DTT are determined based on the entitlement of the beneficial owners.
For example, a partnership can no longer claim benefits on its own behalf; treaty benefits are determined based on the eligibility of each underlying member. To claim a reduced rate of withholding tax, the partnership must provide the name, complete street address, city, postal code, country of residence and personal ID number of each underlying member.
South Korean residents holding DRs
- Individuals residents in South Korea are eligible for a reduced tax rate of 15.4% provided that the appropriate documentation has been submitted.
- Institutional entities domiciled in South Korea are eligible for an exemption of tax (that is, 0%) provided that the appropriate documentation has been submitted.
Important notes:
- For any holder who does not provide the required underlying information, or if the same address and/or personal ID number are improperly used for multiple beneficial owners, the statutory rate of withholding (currently 22%) will be applied.
- The maximum withholding tax rate (currently 22%) will be applied to any claimant for whom this information has either not been provided within the deadline or is incomplete or inaccurate.
Deadline for submission of information to Clearstream
The deadline by which the client must provide Clearstream Banking with the aforementioned beneficial owner details and required documentation will be published as a pre-notification per event.