SOUTH KOREA Law and Practice Contributed by: Junghwan Lee, Dong Seok Woo, Jun Woo Cho and Jee In Kim, Lee & Ko
8.4 Income Tax Withholding for Foreign Investors Non-resident corporations deriving Korean-source income may be subject to Korean tax either through withholding, where the withholding agent withholds and remits the relevant tax to the Korean tax author - ity, through direct tax filing and payment obligations in Korea, or through both, depending on the type of income. Specifically, foreign corporations receiving rental income from Korean real estate derived by foreign cor - porations must report and pay corporate income tax ranging from 11% to 27.5% (inclusive of local income tax), whereas capital gains arising from transfer or sale of Korean real estate are subject to withholding where the withholding agent (ie, transferee) must withhold either (i) 11% (inclusive of local income tax) of total sales proceeds or (ii) 22% (inclusive of local income tax) of capital gains, whichever is lower. Foreign cor - porations deriving capital gains from transfer or sale of Korean real estate must also report and pay corporate income tax ranging from 11% to 27.5% (inclusive of local income tax) – however, any amounts previously withheld (ie, by the transferee) would be creditable. The Korean domestic tax law does not grant any exemptions on taxes imposed on income arising from
of construction, the competent authority may issue either a use permit or a temporary use permit.
8. Tax 8.1 VAT and Sales Tax
As described in 2.10 Taxes Applicable to a Transac- tion for information , VAT is payable on the sale or purchase of a building. 8.2 Mitigation of Tax Liability There are no particular tax mitigation structures com - monly used in the acquisition of large-scale real estate portfolios. However, share deal transactions have been increasingly used in recent years, as they offer the advantages of reducing acquisition tax and sim - plifying the transaction process. 8.3 Municipal Taxes A corporate entity that continuously operates its busi - ness at particular premises, where its employees work and business facilities are installed, is subject to the business premises component of the resident tax. This tax is calculated at KRW250 per square metre of the gross floor area. Where the corporate entity does not own the building, the building owner may be held secondarily liable for any unpaid amount. Premises with a floor area of less than 330 square metres are exempt from this tax. In addition, such corporate enti - ty is also subject to the employee component of the resident tax, which is levied at 0.5% of the aggregate monthly salaries paid to employees. The resident tax above may be increased or decreased by up to 50% in accordance with the rules set by the municipal government.
Korean real estate. 8.5 Tax Benefits
Depreciation of a building may be recognised as an economic loss by a domestic corporate entity that owns real estate, subject to the limitations under the Corporate Tax Act.
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