Newsletter | December 2016, Issue 4
	TAX
	Now Effective in Korea: (1) Hong Kong Tax Treaty, and (2) Amendment to the Korea–India Tax Treaty
	Much earlier than expected, on September 12, 2016, the Korean government notified the Hong Kong government of the Korean National Assembly’s ratification of the Korea–Hong Kong Tax Treaty (“Treaty”). On September 27, 2016, the Treaty entered into force.
	In Korea, the provisions of the Treaty will have effect on: (i) taxes withheld at the source, for amounts payable beginning on or after April 1, 2017; and (ii) other taxes, for any taxable year beginning on or after January 1, 2017.
	Reduced withholding rates and exemption under the Treaty
	Korean Domestic Tax Laws Korea–Hong Kong Tax Treaty Taxes Covered All kinds of taxes In Korea: income tax; corporate tax; special tax for rural development; and local income tax Dividends (Article 10) 22% 10%, if the beneficial owner is a company directly holding at least 25% of the capital of the paying company; 15% in all other cases Interest (Article 11) 22% 10% Royalties (Article 12) 22% 10% Capital Gains (from the alienation of shares) (Article 13) Lesser of 22% of capital gains and 11% of sale proceeds Capital gains from the alienation of shares are NOT exempt Other Income (Article 20) 22% Not taxable (But excess income due to a special relationship is taxable)
	On September 12, 2016, the amendment to the Korea–India Tax Treaty entered into force.
	In Korea, the provisions of the treaty for withholding taxes will have effect for amounts paid or credited, beginning on or after January 1, 2017. The provisions of the treaty for other taxes will have effect for the taxable year, beginning on or after the same date (January 1, 2017).
	Reduced withholding rates and exemptions under the previous treaty, and the amended treaty
	Previous Treaty Amended Treaty Taxes Covered Income tax, corporate tax, inhabitant tax Income tax, corporate tax, special tax for rural development on income (inhabitant tax or local income tax not included) Associated Enterprises (Article 9, Section 2) N/A In case of transfer pricing disputes, Mutual Agreement Procedures with the competent authorities of both countries in case of transfer pricing disputes Dividends (Article 10) Between corporations: 15% Others: 20% For all: 15% Interest (Article 11) Bank interest: 10% Others: 15% For all: 10% Royalties and Fees for Technical Services (Article 12) For all: 15% For all: 10% Capital Gains (from alienation of shares) (Article 13) Exempt from taxation (except for alienation of Stock of Real Estate Rich Company) Taxable if directly or indirectly holding 5% or more of the capital of the company in a 12-month period preceding the alienation of shares (except for alienation of Stock of Real Estate Rich Company) Exchange of Information (Article 26) N/A Information held by financial institutions could be exchanged Definition of Stock of Real Estate Rich Company (Paragraph 1 of the Protocol) “Shares of the capital stock of a company the property of which consists directly or indirectly principally of immovable property” Taxed regardless of ownership percentage The term "shares of the capital stock of a company the property of which consists directly or indirectly principally of immovable property" means "shares deriving more than 50% of their value directly or indirectly from immovable property" Taxable regardless of ownership percentage
	Notably, India has refused to initiate the Mutual Agreement Procedure on transfer pricing matters. India has done so based on the fact that the Treaty does not specifically provide provisions for such a procedure.
	Now that the provisions are specified under Article 9, Section 2 in the amended Treaty, Korean companies that invest in India will be able to pursue the Mutual Agreement Procedure and the Advance Pricing Agreements (“APA”) process.
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	If you have any questions regarding this article, please contact below:
	Woo Hyun Baik whbaik@kimchang.com Christopher Sung chrissung@kimchang.com Hyung Woo Song hyungwoo.song@kimchang.com
	For more information, please visit our website:
	www.kimchang.com General Tax Consulting Practice