Korea’s Ministry of Economy and Finance announced on 27 August 2024 that changes will be made to the procedure to benefit from the withholding tax exemption for certain interest income and capital gains derived by nonresident individuals and foreign corporations. Specifically, income recipients will be allowed to directly request a refund of the withholding tax from the Korean tax authorities.
Under the exemption which has applied since 1 January 2023, a nonresident or foreign corporation is exempt from withholding tax on Korea-source interest income and capital gains derived from government bonds and currency stabilisation bonds issued by the Bank of Korea. The exemption applies to direct investment and investment through a foreign financial company approved by the National Tax Service (i.e., a qualified foreign intermediary). The exemption is designed to attract more foreign investment capital into Korea and establish an investment infrastructure that aligns with international standards where most World Government Bond Index countries provide for nontaxation of interest income for nonresidents and foreign corporations.
To benefit from the exemption, the nonresident individual or foreign corporation must submit an application and a tax residence certificate to the payer before the payment is made. A copy of the individual’s passport, ID card or government-issued document showing the full name and address, corporate charter, foreign investor registration certificate, etc. may be used in lieu of the certificate of residence.
If tax was withheld on the income (e.g., because the relevant documents were not submitted in a timely manner), a refund may be obtained if the withholding agent files a revised tax return within five years from the day after the initial deadline for filing the “tax withholding progress report.” If enacted, the recent proposal will eliminate an administrative burden by allowing the nonresident or foreign corporation to directly request the refund from the Korean tax authorities. This rule will apply as from 1 January 2025.
The new measure will be implemented once passed by the National Assembly, which is likely to take place during the December session.
Songmin Oh
Kwang Tae Oh
BDO in Korea
Under the exemption which has applied since 1 January 2023, a nonresident or foreign corporation is exempt from withholding tax on Korea-source interest income and capital gains derived from government bonds and currency stabilisation bonds issued by the Bank of Korea. The exemption applies to direct investment and investment through a foreign financial company approved by the National Tax Service (i.e., a qualified foreign intermediary). The exemption is designed to attract more foreign investment capital into Korea and establish an investment infrastructure that aligns with international standards where most World Government Bond Index countries provide for nontaxation of interest income for nonresidents and foreign corporations.
To benefit from the exemption, the nonresident individual or foreign corporation must submit an application and a tax residence certificate to the payer before the payment is made. A copy of the individual’s passport, ID card or government-issued document showing the full name and address, corporate charter, foreign investor registration certificate, etc. may be used in lieu of the certificate of residence.
If tax was withheld on the income (e.g., because the relevant documents were not submitted in a timely manner), a refund may be obtained if the withholding agent files a revised tax return within five years from the day after the initial deadline for filing the “tax withholding progress report.” If enacted, the recent proposal will eliminate an administrative burden by allowing the nonresident or foreign corporation to directly request the refund from the Korean tax authorities. This rule will apply as from 1 January 2025.
The new measure will be implemented once passed by the National Assembly, which is likely to take place during the December session.
Songmin Oh
Kwang Tae Oh
BDO in Korea