Providing Excellence In Client Services
May 2013
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
Tax Law Changes in 2013
- Update
Increase of immediate
depreciation limit of the
cost of a work of art
and other related subjects of special interests to foreign investors.
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
as a substitute for a detailed advice in individual cases.
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Foreign invested company
will be exempted from
deemed gift taxation on
sales transactions
between specially related
parties
New Tax Treaty
Please contact any of the following individuals with any inquiries or
comments.
Contacts: H.S. Kim, S.Y. Kim or G.S. Sim 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)
Korea-Bahrain Tax Treaty
came into effect
New Tax Rulings
Imposition of penalty on
the Korean company
paying non-taxable Korean
source income to a foreign
(non-Korean) company
No application of “denial
of unfair transactions” to
the payment of
differentiated dividends
Audit l Tax l Advisory
www.crowehorwath.co.kr
-1-
May 2013
Tax Law
Changes in
2013 - Update
We summarized below some of the major tax law changes additionally proposed by
the government that are expected to be announced before the end of June 2013 to
keep you updated.
1. Increase of immediate depreciation limit of the cost of a work of art
(Article 19 of the Presidential Decree of the Corporate Tax Law)
In case where a company purchases a work of art for display in public places such
as an office and a lobby of the company to decorate or beautify the environment,
the limit of the cost of a work of art for immediate depreciation will be increased
from KRW 3 million to KRW 5 million.
The proposed revision above will be applied to purchases to be made on or after
the enforcement date of the above proposed tax law change.
2. Foreign invested company will be exempted from deemed gift taxation
on sales transaction between specially related parties
(Article 45-3 of the Presidential Decree of the Inheritance and Gift Tax Law)
Under Article 45-3 of the Inheritance and Gift Tax Law, if the amount of sales made
by a company (“beneficiary company”) to its specially related company (“SRC”)
owned by controlling shareholder of the beneficiary company exceeds 30% of the
beneficiary company’s total sales amount on a fiscal year basis, the controlling
shareholder and his/her relative having more than 3% of share ownership in the
beneficiary company directly and indirectly are deemed to be gifted some portion
of income of the beneficiary company from SRC, and the deemed income is
subject to gift tax. However, under the proposed revision, if a beneficiary company
is a foreign invested company under the Foreign Investment Promotion Act
(“FIPA”) and the foreign share ownership in the beneficiary company is 50% or
more, the beneficiary company will be exempted from the above deemed gift
taxation.
The proposed revision above will be applied for the gift tax filing to be made on or
after the enforcement date of the above proposed tax law change.
Korea-Bahrain
Tax Treaty
Korea-Bahrain Tax Treaty came into effect
The governments of Korea and Bahrain agreed to conclude the Korea-Bahrain tax
treaty by exchanging ratification of tax treaty on April 11, 2013, and the tax treaty
became effective from April 26, 2013.
Audit l Tax l Advisory
www.crowehorwath.co.kr
-2-
May 2013
The main provisions of the Korea-Bahrain tax treaty are as follows.
Permanent Establishment (Article 5)
A building site or construction or installation project constitutes a permanent
establishment only if it lasts more than 12 months.
Reduced withholding tax rates (Article 10~12)
① Dividends: 10% [5% if the beneficial owner is a company (other than a
partnership) which holds directly at least 25% of the capital of the
company paying the dividends]
② Interests: 5%
③ Royalties: 10%
Exchange of taxation information (Article 25)
The Korean and Bahraini tax authorities can request each other financial and
taxation information for a suspect of tax evasion.
New Tax
rulings
Imposition of penalty on the Korean company paying non-taxable (taxexempt) Korean source income to a foreign (non-Korean) company
(Gukjesewon-63, 2013.03.04)
If a foreign (non-Korean) company receiving Korean source income fails to submit
an application for tax-exemption or non-taxation on the Korean source income to
the relevant tax office pursuant to Article 98-4 of the Corporate Tax Law of Korea
(“CTL”) and a company paying the Korean source income to the foreign (nonKorean) company fails to submit payment statement within 2 months after the end
of the year which the payment date belongs to under the Article 120-2, Paragraph
1 of the CTL, 2% of the payment amount will be imposed on the company as a
penalty for the failure to submit the payment statement even though it is verified
that the Korean source income is non-taxable or tax-exempt according to the
relevant tax treaty.
No application of “denial of unfair transactions” to the payment of
differentiated dividends (Seomyeonbeopgyu-364 2013.03.29)
In case where shareholders of a company comprise specially related individuals
and the company makes payment of differentiated dividends to its shareholders,
the dividends payment will not be subject to Article 52 (Denial of Unfair
Transactions) of the CTL.
Audit l Tax l Advisory
www.crowehorwath.co.kr
-3-
May 2013
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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
www.crowehorwath.co.kr
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