SOUTH KOREA Law and Practice Contributed by: Dongwook Kang, Chris Kim, Seung-Wan Chae and Jongwoo Kim, Bae, Kim & Lee LLC
Resident Corporation For a resident corporation, any income from the fund is subject to corporate income tax at progressive tax rates. The current corporate income tax rates are as follows: • 9% on the first KRW200 million of taxable income; • 19% on taxable income over KRW200 million up to KRW20 billion; • 21% on taxable income over KRW20 billion up to KRW300 billion; and • 24% on taxable income over KRW300 billion. In addition, the local surtax is taxed in addition to cor - porate income tax, at progressive tax rates ranging from 0.9% to 2.4% on the taxable income. According to the South Korean government’s pro - posed tax revision, which is expected to take effect in 2026, the tax rate will increase by 1% across all brackets. Pension Funds As non-profit corporations, pension funds are also subject to tax. However, the effective tax rates for such pension funds are generally significantly lower because of special reserves that they can set aside and deduct from taxable income. Furthermore, pen - sion funds such as the National Pension Fund or Korea Post are part of the Korean government body and are therefore not subject to corporate income tax. Resident Individual For a resident individual, any income from the qualify - ing fund is in principle classified as dividends and sub - ject to individual income tax at progressive tax rates ranging from 14% to 45%. In addition, local surtax is charged in addition to individual income tax, at pro - gressive tax rates ranging from 1.4% to 4.5% on the taxable income. Non-Resident Investors For a non-resident investor, income from the qualify - ing fund is generally subject to withholding tax at a rate of 22% (including local surtax) or the applicable withholding rate under the relevant tax treaty, subject to certain favourable exceptions available for foreign
That said, for internet-based advertisement and mar - keting including social media, mass communications and publications, if it is not directed to South Korean investors, one view is that this will not be considered marketing and advertising to South Korean investors. “Not directed”, although not defined in the FSCMA, generally means that the advertisement and marketing is not in the Korean language and is not performed exclusively in South Korea but is a general global activity by the manager. In the above fact pattern, it is considered that the reverse enquiry exemptionmay still be later applied by the manager to an investment. 4.7 Compensation and Placement Agents GPF managers are required either (i) to engage a local - ly licensed investment broker as their placement agent for the marketing and sales of their private funds or (ii) to conduct such marketing and sales activities via their personnel equipped with the applicable licence for investment solicitation activities. They normally engage a locally licensed investment broker. IPF managers are not required to engage a licensed investment broker for the marketing and sales of their IPFs. They usually conduct the marketing and sales activities of their IPFs via their own personnel. A manager’s personnel may receive performance- based compensation from the manager, but are not allowed to receive the compensation directly from the funds. 4.8 Tax Regime for Investors Resident Investors With respect to resident investors, income from the qualifying fund is generally subject to withholding tax at a rate of 15.4% (including local surtax), subject to certain exceptions available for sovereign investors or financial institutions (such as banks and insurance companies). Any taxes withheld by the funds are cred - itable when the corporate income tax or individual income tax is calculated.
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