SOUTH KOREA Law and Practice Contributed by: Young Joon Chun, Kyu Dong Kim, Yong Whan Choi and Hyeon Jeong, Yulchon LLC
3.5 Taxation of Individuals on Shares in Public Corporations Dividends paid from a publicly traded corporation to an individual shareholder are taxed in the same man - ner as those paid from an unlisted company to an individual shareholder. Capital gains arising from the sale of listed shares are not subject to tax when sold by a minority sharehold - er through the securities market. However, when the sale takes place over the counter, the capital gains are subject to a 22% tax (11% in the case of listed shares in an SME), inclusive of local income tax. When the total stake of a shareholder in a listed company, together with any related parties (majority sharehold - er), exceeds 1% of the total shares, or if the total mar - ket value of the stock held by the shareholder is KRW5 billion or more, such shareholder will be taxed on the capital gain at 22% for taxable income up to KRW300 million and at 27.5% for taxable income over KRW300 million, regardless of whether the shares were sold through the securities market or over the counter (a 33% flat rate applies to non-SME shares held for less than one year before their sale). 4. Taxation of Inbound Investments 4.1 Application of Withholding Taxes In general, interest, dividends and royalties paid to a non-resident company or individual are subject to 22% withholding tax (inclusive of local tax). The rate may be reduced under applicable tax treaties. The Korean tax authority takes a conservative position in relation to the application of reduced treaty rates, which can differ depending on the beneficial owner of the Korean source income. In addition, it is worth noting that the Korean tax authority is determined to collect withholding tax on royalties paid to US companies. In respect of roy - alty withholding tax for US companies, the Korean Supreme Court has held in various cases that royal - ties received by a US resident for the use of a patent that is not registered in Korea is not Korean source income under the Korea–US Tax Treaty, and there - fore should not be subject to income tax in Korea.
Even though the Korea–US Tax Treaty generally over - rides the domestic tax laws, the Korean tax authority has made considerable efforts to impose withholding tax on such royalties through tax law amendment. After the most recent tax law amendment relating to royalties, it needs to be closely monitored whether the Korean courts will continue to hold that royalties received by a US company for the use of a patent that is not registered in Korea should not be taxed in Korea, or if they will change their position. Starting in 2026, a new obligation has been introduced requiring the withholding agent to file with the tax office the application for treaty-reduced withholding tax rates received from the income recipient by the end of February of the year following the year in which the payment date falls. 4.2 Key Treaty Jurisdictions for Inbound Investment As of December 2025, Korea has concluded double tax agreements with 98 countries. Foreign investors have primarily used the Netherlands, Belgium and Ire - land to make investments into Korea through interme - diate holding companies. 4.3 Tax Authority Scrutiny of “Treaty Shopping” Practices The Korean tax authority tends to challenge the use of treaty countries by non-treaty country residents by aggressively applying the substance-over-form prin - ciple to argue that entities established in favourable treaty countries are not the beneficial owners of the relevant Korean source income. A “beneficial owner” is a person who bears legal or economic risk related to Korean source income and who, in substance, holds ownership rights over such income, including disposal rights. 4.4 Transfer Pricing Issues for Inbound Investors The Korean tax authority closely monitors compa - nies whose profitability suddenly drops or whose profits fluctuate over a number of years. The Korean tax authority is likely to scrutinise companies that have had significant business restructuring, as well as those paying substantial royalties or management
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