Foreign Corporation
Foreign Corporations
We advise both foreign companies entering Korea and Korean companies expanding abroad — where tax is owed, how much, and what you need in place to avoid paying twice.
Inbound and outbound: foreign companies in Korea, Korean companies abroad
Permanent establishment analysis and tax treaty application
Withholding tax and cross-border filing obligations
It starts with permanent establishment
Whether Korea can tax what a foreign company earns here usually turns on one question: is there a permanent establishment (PE)? In plain terms, a fixed place through which business is carried on. With a PE, corporate tax is filed on the income attributable to it. Without one, the payer simply withholds tax on defined categories of income — interest, dividends, royalties — and that is the end of it.
The line is often unclear
Business today runs without offices, so the facts matter more than the paperwork.
Staff or agents in Korea
Someone who habitually exercises authority to conclude contracts can create a PE. What matters is what they actually do, not the title on the business card.
A warehouse or a server
Purely preparatory or auxiliary activity — storage, display — does not create a PE. Go beyond that and the answer changes.
Branch or subsidiary
A branch is part of the same legal entity; a subsidiary is separate. Tax rates, taxation on repatriated profit and the ability to use losses all differ. Decide before you enter.
A tax treaty changes the numbers
Korea has treaties with more than ninety countries. Where one applies, a reduced rate may replace the domestic rate, or the income may not be taxable in Korea at all. It does not happen automatically. The recipient must show residence in the treaty country and be recognised as the beneficial owner of the income. Without the documents in place beforehand, tax is withheld at the domestic rate and you are left claiming it back.
Double taxation is relieved by credit
A Korean company operating abroad pays tax locally and still reports worldwide income in Korea. The foreign tax credit prevents the same income being taxed twice. How the limitation is calculated and how carryforwards are managed decides how much credit you actually obtain, so we plan it from the moment foreign tax is paid.
The filings that are easy to miss
Cross-border activity brings reporting obligations separate from the tax return. Paying the tax in full does not protect you from a penalty for a missing schedule.
Schedule of international transactions
Filed with the corporate tax return where there are transactions with foreign related parties.
Report on overseas subsidiaries
Required where you hold a subsidiary abroad, covering its status and financial position.
Foreign financial account reporting
Where aggregate balances in foreign accounts exceed the threshold, an annual report is due in June. Penalties are heavy and can extend to criminal liability.
Permanent establishment and treaty analysis depend on the contractual structure and what is actually done in Korea. The above is general guidance; we give a view on your position once we have seen the arrangements and the documents.