Providing Excellence In Client Services
July 2012
Newsletter
Bi-monthly Newsletter of Horwath Choongjung LLC
Contents
This newsletter is prepared and issued by Horwath Choongjung LLC
(Choongjung Accounting Corp.) on a bi-monthly basis and intended to
provide foreign investors with an update on tax law changes in Korea
and other related subjects of special interests to foreign investors.
2012 Tax Law Changes
The information provided herein should not form a basis of any
decision as to a particular course of action, nor should it be relied upon
Further segmentation of
the scope of ‘Business
Services’ subject to zero
rate VAT
as a substitute for a detailed advice in individual cases.
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Amendment of the
Korea-Swiss tax treaty
Please contact any of the following individuals with any inquiries or
comments.
Management of bank
account to get refund of
overpaid national tax
Contacts: G.S. Sim or H.S. Kim at Tax&BPO Services of Horwath
Choongjung [Tel: (82)(2) 316-6600, Fax: (82)(2) 775-5885, E-mail:
post@crowehorwath.co.kr]
(You may find this newsletter and other items of interest at
http://www.crowehorwath.co.kr)
New Tax Ruling
Application of exchange
rate to convert taxes paid
in foreign country for
foreign tax credit
Audit l Tax l Advisory
www.crowehorwath.co.kr
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July 2012
2012 Tax Law
Changes
1. Further segmentation of the scope of ‘Business Services’ subject to zero
rate VAT
In the recently revised Presidential Decree of Value Added Tax Law (“PD-VATL”),
‘business facilities management and business support services’ shall be subject to zero
rate VAT.
Under Article 11 of the Value Added Tax Law (“VATL”) and Article 26 of the PD-VATL
before the amendment, in the case where ‘business services’ are provided in Korea to
a non-resident or a foreign (non-Korean) company without its permanent establishment
in Korea and the consideration is received in Korean Won from the foreign company
through a designated foreign exchange bank, the service provision may be subject to
zero rate VAT.
‘Business services’ under the VATL were made reference to the previous Standard
Industry Classification Table (“SICT”) and classifications of business were changed in
the ninth revision to the SICT in 2007, where the ‘business services’ were subdivided
into ‘professional, scientific and technical business service’, ‘business facilities
management and business support services’ and ‘publication, video, broadcasting
communication and information services’ under the revised SICT.
The scope of ‘business services’ under the PD-VATL was amended in February 2012 in
order to reflect the foregoing change of the classifications of business. In this regard,
‘professional, scientific and technical business service’ and ‘publication, video,
broadcasting communication and information services’ shall be subject to zero rate VAT
continuously, whereas ‘business facilities management and business support services’
were excluded from the transactions subject to zero rate VAT.
There were concerns that this exclusion may have negative impact on businesses of
‘business facilities management and business support services’. For this reason,
‘business facilities management and business support services’ were additionally
included in the category of the services eligible for the zero rate VAT in the recent
revision of the PD-VATL.
The above amendment is effective for goods/services to be provided on or after July 1,
2012.
Audit l Tax l Advisory
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July 2012
2. Amendment of the Korea-Swiss tax treaty
The governments of Korea and Swiss agreed to amend the Korea-Swiss tax treaty by
exchanging ratification of tax treaty in a recent meeting held in Bern, Swiss on July 10,
2012 and the treaty came into force on July 25, 2012.
The amended treaty newly contains a provision on exchange of taxation information
including financial information. The Korean and Swiss tax authorities can request each
other financial information even with bank account number alone and without personal
information (name, address, etc.). The request for exchange of taxation information is
applicable starting from the effective date of July 25, 2012 for the information
retrospectively from January 1, 2011.
The amended treaty would lower the reduced withholding tax rates on interests,
dividends and royalties and permit taxation on capital gains derived from alienation of
stocks with underlying real estate(*) in the country, where the capital gains were
sourced from. The foregoing amendment will be effective for the payment to be made
on or after January 1, 2013.
(*) stocks with underlying real estate: in the case where real estate comprises 50% or
more of the total assets of a stock holding company.
3. Management of bank account to get refund of overpaid national tax
In order to get refund of the overpaid national tax, an application of bank account
opened/changed should be submitted to the district tax office with the Form No. 22 as
required under the Basic Law on National Taxes. However, if the taxpayer fills out a
taxpayer’s bank account information for tax refund when filing the tax return, and the
refundable national tax amounts are less than KRW 20 million, the national tax can be
refunded to such designated bank account under Article 59 of the National Tax
Collection Work Process Regulations (amended on May 17, 2012).
New Tax
Ruling
1. Application of exchange rate to convert taxes paid in foreign country for
foreign tax credit (Gukjesewon-279, 2012.06.05)
If a foreign (non-Korean) company does not withhold taxes on royalty payment to a
Audit l Tax l Advisory
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July 2012
Korean company upon payment, and if the foreign company later files its amended tax
return and pays taxes to its tax authorities, and thus the Korean company returns the
withholding taxes resulting from filing the amended tax return to the foreign company,
the foregoing tax payment in foreign country to apply foreign tax credit is converted by
the basic exchange rate or arbitraged exchange rate based on the Foreign Exchange
Transaction Law at the time when the foreign company paid the taxes to its tax
authorities .
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Horwath Choongjung LLC
Member Crowe Horwath International
PMAA Jaram Building, 16th Floor, 566 Dohwa-dong,
Mapo-gu, Seoul 121-815, Korea
TEL: (82)(2) 316-6600 FAX: (82)(2) 775-5885 E-mail: post@crowehorwath.co.kr
Website: http://www.crowehorwath.co.kr
Horwath Choongjung LLC is a member of Crowe Horwath International, a Swiss association. Each member firm of Crowe Horwath International is a
separate and independent legal entity. Horwath Choongjung LLC and its affiliates are not responsible or liable for any acts or omissions of Crowe Horwath
International or any other member of Crowe Horwath International and specifically disclaim any and all responsibility or liability for acts or omissions of
Crowe Horwath International or any other Crowe Horwath International member.
Audit l Tax l Advisory
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