National Tax Service

Tax Information

※ The following tax information is translated from Korean for foreign-invested companies, and is not legally binding.


○ (Q) A Korean company\'s royalty payment to a U.S. company was offset by debt to be collected from the U.S. company and as a result no transactions for the royalty occurred. In this case, is the royalty subject to withholding tax?
○ (A) If a Korean company receives a component design blueprint from a U.S. company that does not have a PE (Permanent Establishment) in Korea, the Korean company\'s payment for the blueprint is considered royalty payment. Even if the royalty is offset by uncollected debt, tax should be withheld from the total amount of royalty.

※ Related laws: Article 93 Subparagraph 8 of the Corporate Tax Act


○ (Q) A manufacturing facility of a foreign-invested company engaged in a business eligible for tax incentives for foreign investment temporarily ceased production due to an accident. Since this company had an insurance policy for hedging against losses, it received insurance claim proceeds for operating loss and facility repair costs and used the insurance claim proceeds to compensate buyers for delivery delay. In this case, does the insurance claim proceeds constitute proceeds from businesses eligible for tax incentives for foreign investment?
○ (A) If a company receiving tax incentives for foreign investment under Article 121-2 of the Restriction of Special Taxation Act had to temporarily cease manufacturing activities due to an accident in its manufacturing facility used for a business eligible for tax incentives, and the company received insurance claim proceeds for operating losses and facility repair costs through an insurance policy for hedging against manufacturing facility accidents and resulting operating losses, the insurance claim proceeds constitute proceeds from businesses eligible for tax incentives for foreign investment, and the compensation paid to customers for delay of delivery constitutes loss from businesses eligible for tax incentives for foreign investment.

※ Related laws: Article 14 of the United States-Republic of Korea Income Tax Convention, Article 121-2 of the Restriction of Special Taxation Act


○ (Q) Can housing management costs paid to company executives be recognized as business loss?
○ (A) Housing management costs (i.e. utility fees) for a company-provided housing should be considered as expense paid by the tenant of a company-provided housing. Therefore, housing management costs provided only to foreign executives and not to employees are not recognized as business loss.

※ Related laws: Article 26, 27 and 52 of the Corporate Tax Act