Executive summary
Once an entity is confirmed as a foreign corporation subject to Korean tax, the next practical question is: which of its income is actually taxed, and how does Korea collect that tax? The answer depends on which of ten statutory categories the income falls into, whether the foreign corporation has a Korean place of business the income is tied to, and whether a tax treaty applies. Depending on those factors, the same type of income can be comprehensively self-assessed and filed, or simply withheld at source and treated as fully settled — two very different compliance experiences.
This guide walks through Korea's ten categories of Korean-source income, how the taxation method is determined, and how the applicable rates shift depending on whether a tax treaty is in place.
Who should read this
- Foreign corporations receiving Korean-source income of any kind
- In-house tax managers determining withholding obligations on payments to foreign related parties
- CFOs assessing effective tax rates on Korean operations
- Legal and tax counsel reviewing treaty-based rate reductions
The short answer
Foreign corporations are taxed in Korea only on Korean-source income, which falls into ten statutory categories — interest, dividends, real estate income, income from leasing ships/aircraft/registered vehicles/construction equipment, business income, personal services income, gains on real estate transfers, royalties, gains on securities transfers, and other income.
How it's taxed turns on one central question: is the income attributable to a Korean place of business, or does it involve real estate income?
- If yes — the income is generally subject to comprehensive, self-assessed filing (신고납부·종합과세), the same way a domestic corporation is taxed
- If no — the income is generally subject to withholding at source, which settles the tax obligation completely (원천징수·분리과세) — except for capital gains, which always require a return regardless of place-of-business attribution
A non-profit foreign corporation is only taxed on the portion of its Korean-source income that comes from profit-making activity.
Quick comparison: taxation method by scenario
| Scenario | Taxation method |
|---|---|
| Income attributable to a Korean place of business | Comprehensive filing (신고납부·종합과세) |
| Real estate income (regardless of place of business) | Comprehensive filing (신고납부·종합과세) |
| Income not attributable to a place of business, and not real estate income | Withholding, tax obligation fully settled (완납적 원천징수) |
| Capital gains (real estate or securities) | Withholding applies, but the foreign corporation must still file a return to reconcile (신고납부 병행) |
| No tax treaty with the home country | Korean domestic tax law applies without modification |
| Tax treaty exists | Domestic procedure generally applies, but treaty limited rates and treaty-specific rules (e.g., no business income tax without a Korean place of business) override where they conflict |
Understanding the ten categories of Korean-source income
Korea's Corporate Tax Act sets out ten categories of income treated as Korean-source:
- Interest income
- Dividend income
- Real estate income
- Income from leasing ships, aircraft, registered vehicles, and construction equipment
- Business income
- Personal services income
- Gains on the transfer of real estate and related rights
- Royalty income
- Gains on the transfer of securities
- Other income
Whether income falls into one of these categories — rather than any assumption about the payer or the transaction's economic substance — is the threshold question for Korean taxation.
How the taxation method is determined
Step 1: Is there a Korean place of business, or real estate income?
- A foreign corporation whose Korean-source income is attributable to a Korean place of business, or that has real estate income, must file and pay corporate tax on a comprehensive basis — combining that income into a single return, much like a domestic corporation.
- Income not attributable to a Korean place of business, and not real estate income, is generally subject to withholding at source by the payer, and that withholding fully settles the foreign corporation's tax obligation on that income — no further filing is required.
- Capital gains are the exception: even though withholding applies, the tax obligation is not considered settled by withholding alone — the foreign corporation transferring the asset must still file a return to reconcile the final amount.
Step 2: Is there a tax treaty?
Without a tax treaty (for example, Korea has no tax treaty with countries such as Argentina), the foreign corporation is simply taxed under Korea's domestic Corporate Tax Act, with the withholding/comprehensive-filing split above applying at standard domestic rates.
With a tax treaty, the general domestic filing procedure still applies unless the treaty specifically overrides it — but treaties commonly change three things:
- No Korean tax on business income without a Korean place of business — a treaty typically bars Korea from taxing business income at all unless the foreign corporation has a permanent establishment here
- Limited (reduced) withholding rates on interest, dividends, and royalties — often lower than the domestic statutory rate
- Certain general taxation principles under the treaty may otherwise differ from purely domestic treatment
Withholding rates at a glance (no tax treaty)
For a foreign corporation without a Korean place of business (and without real estate income), Korea's standard withholding rates apply:
| Income type | Standard rate |
|---|---|
| Business income | 2% |
| Interest income | 20% (14% for certain bonds) |
| Dividend income | 20% |
| Royalty income | 20% |
| Ship/aircraft/vehicle/equipment leasing income | 2% |
| Personal services income | 20% |
| Securities transfer gains | 10% or 20% |
| Other income | 20% (15% for compensation related to overseas patent infringement, for payments made on or after January 1, 2020) |
| Real estate transfer gains / real estate income | Withholding of 10% or 20%, with a return still required |
Where a tax treaty applies, interest, dividend, and royalty income are generally withheld at the treaty's limited rate instead of the domestic statutory rate.
Important carve-out: certain Korean-source income remains subject to withholding even when it's attributable to a Korean place of business — specifically, income from construction, installation, or assembly work (and related supervisory services), and personal services income — unless that place of business has completed business registration.
How this compares to domestic corporations
| Item | Domestic corporation | Foreign corporation (with Korean place of business) |
|---|---|---|
| Scope of tax liability | Worldwide income, liquidation income, real estate transfer gains | Korean-source income only, real estate transfer gains (no liquidation income tax) |
| Tax base deductions | Carried-forward losses, non-taxable income, income deductions | Carried-forward losses, non-taxable income, mutually tax-exempt shipping/aircraft foreign-route income |
| Standard corporate tax rates | Same progressive brackets (9% / 19% over KRW 200M / 21% over KRW 20B / 24% over KRW 300B) | Same as domestic corporations |
| Foreign tax credit | Available | Only partially available |
| Corporate establishment filing deadline | Within 2 months of incorporation registration | Within 2 months of establishing a Korean place of business, or of first earning real estate income |
| Withholding, bookkeeping, and other compliance duties | Full set of obligations | Same as domestic corporations |
| Stock movement statement filing | Required if there's a change in shareholding | Not applicable |
Practical insight: the same income type can be taxed two different ways
It's easy to assume royalty income, for instance, is "always withheld at 20%." In practice, that's only true when the royalty isn't tied to a Korean place of business. Where the same royalty income is attributable to a Korean place of business, it instead gets folded into comprehensive filing. The income category alone doesn't determine the method — the place-of-business attribution does.
Practical insight: capital gains are withheld and filed — not one or the other
A common misunderstanding is treating withholding on a capital gain (real estate or securities) as the end of the story, the way it is for interest or royalties. It isn't. The withholding is only a provisional collection mechanism; the foreign corporation transferring the asset still has to file a return to reconcile the actual tax due, regardless of place-of-business attribution.
What foreign companies often get wrong
Mistake #1
Assuming a single withholding rate applies to a type of income regardless of whether it's tied to a Korean place of business.
Mistake #2
Treating withholding on a capital gain as fully settling the tax obligation, when a return is still required.
Mistake #3
Applying the domestic statutory withholding rate on interest, dividends, or royalties without checking whether a treaty's limited rate should apply instead.
Mistake #4
Overlooking that construction/installation-related income and personal services income remain subject to withholding even when tied to a Korean place of business, unless that place of business has completed business registration.
Frequently asked questions
If we have a Korean branch, is all of our Korean-source income comprehensively taxed?
No — only income actually attributable to that branch (or real estate income) is comprehensively filed. Korean-source income unrelated to the branch is still withheld and separately taxed.
Does a tax treaty always reduce our withholding rate?
Not automatically — it depends on the specific treaty's limited rate provisions for each income type. Where no reduced rate is specified, or no treaty exists, the domestic statutory rate applies.
Are non-profit foreign corporations taxed the same way?
A non-profit foreign corporation is only subject to Korean corporate tax on the portion of its Korean-source income arising from profit-making activity — not on its full Korean-source income the way a for-profit foreign corporation is.
Do foreign corporations pay tax on liquidation income like domestic corporations do?
No — foreign corporations (including non-profit ones) have no Korean tax liability on liquidation income, though they remain subject to tax on gains from transferring land and buildings.
Practical checklist
Before determining your Korean withholding or filing obligations, confirm:
- Which of the ten Korean-source income categories the income falls under
- Whether the income is attributable to a Korean place of business, or is real estate income
- Whether a tax treaty exists with the recipient's home jurisdiction, and what limited rate (if any) it sets for that income type
- Whether the income is a capital gain requiring a return regardless of place-of-business attribution
- Whether construction/installation or personal services income remains subject to withholding despite being tied to a registered Korean place of business
Key takeaways
Korean-source income for a foreign corporation isn't taxed uniformly — the method depends on whether the income is tied to a Korean place of business (or is real estate income), whether a tax treaty modifies the domestic rate, and whether the income is a capital gain requiring reconciliation by return. Getting the taxation method wrong is often a bigger practical risk than getting the rate wrong, since it changes whether any further filing is required at all.
Related guides
If you found this guide helpful, you may also be interested in:
- How Is a Foreign Corporation Taxed in Korea? The Corporate Tax Framework Explained
- Permanent Establishment (PE) in Korea: When Does a Foreign Company Become Taxable? (coming soon)
- Withholding Tax in Korea: What Foreign Businesses Need to Know (coming soon)
- Corporate Income Tax Compliance for Foreign Companies in Korea (coming soon)