FAQs about Foreign Invested Companies II
Date: July 10, 2020
The following is the most frequently asked questions about establishment of foreign direct investment corporations.
II. After FDI Corporation Establishment
Q16. How can I geta business registration issued?
☞ You can file for a business registration at the tax office having jurisdiction over the place of tax payment after corporation establishment. It takes about three business days.
Q17. When can I beginto use the capital I’d sent for corporation establishment?
☞ Once business registration is issued you are able to open your corporate account. You can transfer your capital to the corporate account and begin to use.
Q18. Is it possible for a company with a financial crunch to increase capital?
☞Yes, it is possible. However, you should make corrections to the foreign investment notification and certificate of corporate seal registration for capital increase.
Q19. Is there any other way to raise funds from foreign investors except capital increase?
☞ Yes, You can borrow some money from foreign investors. You also should report to the bank for the loan. You might have to pay some interests with the rate of normal rate of interest.
Q20. What is the normal rate of interest?
☞ When a domestic resident lend out to a foreign related party it refers to the interest rate of overdrawn account, 4.6%. On the other hand, when a domestic resident borrow money from a foreign related party, the rate is the London Inter-Bank Offered Rate on 12-month loans by currency as at the end of the immediately preceding business year plus 15/1,000.
Q21. How a corporation can pay dividends to foreign shareholders?
☞ Payment of settlement dividends through a resolution of general meeting of shareholders (once a year). Payment of interim dividends through a resolution of board of directors. However, the articles of incorporation should stipulate provisions about interim dividends. Therefore, you should check your corporation’s articles of incorporation.
Q22. What tax issues should be considered for dividend payment to foreign shareholders?
☞ You should check whether the country that the foreign shareholders from and Korea have trade treaties and if the dividends are taxable under the treaties you should check the limited tax rate. When you pay your dividends you should transfer the amount after excluding the amount of limited tax rates. If there’s no tax treaties between the two countries 22% of dividends should be excluded before payment for withholding tax payment.
Q23. Is there any documents to submit for restrictive tax rates for interests and dividends?
☞ Yes. Those who pay dividends should receive and keep an application form of restrictive tax rates for domestic income from their foreign investors. They are required to submit the documents upon the request from a tax office.
Q24. If interest and dividends income is subject to non-taxation and exemption under a taxt reaty is there any required documents?
☞ Yes. You should submit an application for non-taxation and exemption for interest and dividends income to the head of a tax office having jurisdiction over the place for tax payment until the 9th day of the next month to which the date of receipt of such amount belongs.
Q25. What happens if I fail to submit the application?
☞ You will not be able to enjoy the benefit of the tax exemption and should pay withholding tax to the tax office having jurisdiction over the place for tax payment.
Q26. If I receive an application for non-taxation and exemption for interest and dividends income late?
☞ You can get the withholding tax you had paid back by filing a request for correction.
Q27. When a domestic company needs to pay royalty to a foreign company how can I deal with tax issues?
☞ You should check with tax treaties first whether it is subject to the restricted tax rates or non-taxation or tax-exemption and then check withholding tax issues. You can check the provision for royalty income on the tax treaty. Required documents are the same with the ones for interest and dividend income.
Q28. Does the Korean tax law have any payment standard for royalty income?
☞ No. The Korean tax law does not have any provisions for royalty income. However, you should check arm’s length price under the adjustment of international taxes law. Please check the Adjustment of International Taxes Act for arm’s length price.
Q29. What are tax benefits for foreign invested corporations?
☞ The Korean government is offering tax cuts for corporate tax and income tax but it is for those who invest at least two million dollars. However, the same tax benefits offered to domestic corporations are also provided to foreign invested corporations if they meet some criteria. The tax benefits include special taxcredit for small and medium corporations and tax credit for employment expansion.
Q30. Is there any difference with domestic corporations in corporate tax rates?
☞ No. There’s no difference. Corporate taxes are the same.
Corporate Tax Rate
Below 200 million
Over 200 million ~ below 20 billion
Over 20 billion ~ below 300 billion
Over 300 billion ~
Q31. What is a consolidated report on international transaction information?
☞ It is the13th task of 15 tasks out of the OECD BEPS projects. Korea introduced in 2015 and put it in place in 2017.
Q32. All foreign companies are subject to a consolidated report on international transaction information?
☞ No. The report includes consolidated business reports, individual business reports,reports by country, and documents about the person obliged to submit reports. Each report requires different person obliged to submit reports and content to write in. Therefore, you need to check the requirements in advance.
Learn more about Korean tax system by visiting our website