Korean-Source Income for Foreign Corporations: Personal Services, Capital Gains, Royalties, and Securities

Executive summary

This guide covers four more of Korea's ten Korean-source income categories for foreign corporations: personal services income, capital gains, royalty income, and gains on securities transfers. The most practically important part of this guide may be the distinction between royalty income and personal services income — two categories that get confused constantly, carry very different documentation expectations, and can turn a single technology transfer arrangement into a very different tax outcome depending on how it's structured and evidenced.

A companion guide covers the first five categories: interest, dividends, real estate, ship/aircraft/equipment leasing, and business income.

Who should read this

• Foreign corporations providing professional services, technology, or engineering support in Korea
• Companies licensing technology, software, or intellectual property into Korea
• Foreign shareholders and investors disposing of Korean real estate, real-estate-heavy company shares, or securities
• In-house tax teams structuring technology transfer or engineering service agreements

The short answer

The four categories covered here:

• Personal services income — income from professional or independent services performed in Korea by the foreign corporation itself or its employees: entertainers and performers, professional athletes, licensed professionals (lawyers, accountants, architects, surveyors, patent attorneys, and similar), and specialists applying professional or technical knowledge in a particular field
• Capital gains — gains from transferring Korean real estate, real-estate-related rights, business goodwill sold alongside fixed business assets, facility usage rights, and shares in real-estate-heavy Korean companies
• Royalty income — payments for using (or the right to use) intellectual property, know-how, or similar assets in Korea, or for transferring those rights or assets
• Securities transfer gains — gains from transferring shares or other securities issued by a domestic corporation, listed shares issued by a foreign corporation, or other securities issued by a foreign corporation's Korean place of business

Quick comparison

Understanding the income categories

Personal services income

A foreign corporation's personal services income is income earned by providing, through the corporation itself or its employees, specific professional-type services in Korea:

• Services provided by film or theater actors, musicians, and other public performers
• Services provided by professional athletes
• Services provided by lawyers, certified public accountants, architects, surveyors, patent attorneys, and other independent professionals
• Services provided by someone applying specialized professional knowledge or a special skill in science, technology, business management, or another field, using that knowledge or skill

This category represents consideration for independently-provided professional services or other independent-character activity — conceptually the corporate equivalent of what wage income represents for an individual employee providing services to someone else as their employee.

A specific exception: income from the fourth category above (specialized professional or technical knowledge/skill) is treated as Korean-source even if the service was actually performed outside Korea, if a governing tax treaty deems that income to arise in Korea.

Airfare and accommodation carve-out: where the recipient of personal services can confirm that airfare, accommodation, or meal costs connected to the services were actually paid directly to an airline, lodging provider, or restaurant (including payments routed through the service provider), those amounts are excluded from Korean-source income.

Capital gains

A foreign corporation's Korean-source capital gains cover income from transferring the following Korean-located assets and rights:

Land or buildings. "Land" follows the land category classification under Korea's cadastral registration framework; "buildings" includes attached facilities and structures.

Rights related to real estate, including:

• Superficies rights, chonsegwon (a Korean leasehold-type right), and registered real estate lease rights
• Rights to acquire real estate — meaning a right to acquire real estate before the statutory acquisition date under Income Tax Act Article 98 has arrived. Examples include: the right to acquire a building and its attached land once construction completes (such as an apartment pre-sale right); land or housing repayment bonds issued by a local government or the Korea Land Corporation; and a right transferred by someone who has only paid a down payment under a real estate sale contract

Goodwill sold alongside business fixed assets. Goodwill transferred together with business fixed assets (land, buildings, or real-estate-related rights) — including goodwill that wasn't separately appraised but is, by common commercial understanding, recognized as included in and transferred with the assets, plus the economic benefit obtained through government licenses, permits, or approvals.

Facility usage rights. Usage rights, membership rights, or similarly-named rights granted to members of an organization who have agreed to exclusive or preferentially-favorable use of a facility — including where owning shares in the operating company itself confers that exclusive or favorable usage right.

Shares in real-estate-heavy corporations ("real estate stock"). Shares or equity interests in a domestic corporation (including depositary receipts and subscription rights issued on the basis of such shares), where — as of the start of the fiscal year containing the transfer date — the sum of (a) the value of the company's land, buildings, and real-estate-related rights, plus (b) the share value of any other real-estate-heavy company the corporation holds (multiplied by that other company's real-estate-holding ratio), makes up 50% or more of the corporation's total assets.

• If these shares are listed on an exchange, they're excluded from this category and classified instead as securities transfer income.
• Where a governing tax treaty's interpretation, agreed with the treaty partner, recognizes Korea's taxing right over such real-estate-heavy shares, those shares are included in this category regardless of the general rule above.
• Total assets and asset values are calculated from the company's book value (or, for land, the standard assessed value). Two items are specifically excluded from total assets for this calculation: the portion of intangible fixed assets representing development costs and donated-use assets, and increases in cash, financial assets, or loans receivable arising from borrowing or capital increases during the one-year period ending on the transfer date's fiscal year start.

Royalty income

A foreign corporation's royalty income is the consideration for using, or the right to use, the following rights, assets, or information in Korea, or paid in Korea, plus income from transferring those rights, assets, or information:

• Copyrights (including film), patents, trademarks, designs, models, drawings, secret formulas or processes, radio/television broadcast films and tapes, and similar assets or rights in academic or artistic works
• Industrial, commercial, or scientific knowledge, experience-based information, or know-how
• Under treaties that define royalties based on where the asset is used (use-location basis): other similar property or rights included in that treaty definition — including patents, utility models, trademarks, or design rights not registered in Korea (registration not being required for their exercise), where the manufacturing method, technology, or information embedded in them is, in substance, actually implemented or used in Korea (such as being connected to Korean manufacturing or production)

A few additional points of interpretation are worth knowing. What counts as "use" of an intangible asset or right: both the consideration for using an asset/right/information in Korea, and consideration for the right to use it, count — regardless of whether the underlying asset or right is formally registered, and without registration being a precondition. Amounts paid under a license agreement — including upfront fees, advance payments, and any form of payment for providing or transferring the asset — count as royalties, as does compensation-type consideration paid for illegal reproduction or infringement.

Software: payment for acquiring a copyright and payment for the right to reproduce, distribute, or modify software are royalty income. Where the payment isn't structured as an outright copyright transfer, it's still royalty income if the software's source code is provided; the software was custom-produced or modified specifically for the domestic importer (absent source code provision); or the payment is calculated based on usage patterns or production volume tied to the software's use. Withholding applies to the software payment separately when it's price-separable from any bundled hardware, and to the full bundled price when the media/container cost is minor relative to the total. Payment for a custom-developed software product — where the domestic importer commissioned and funded the development and acquires comprehensive rights (including copyright) in the resulting software — is not royalty income.

Ancillary installation services on imported equipment: where installation, assembly, related supervision, and after-sales service accompanying imported fixed assets from a foreign corporation with a Korean place of business are bundled into the import price, that bundled amount is neither personal services nor royalty income — it's treated as business income instead.

Technology used at an overseas branch or job site: where a domestic corporation licenses assets, rights, or information from a foreign corporation without a Korean place of business, and uses that technology at the domestic corporation's own overseas branch or construction site in a third country, the payment is still Korean-source royalty income (because it's paid by a Korean company), even though the actual use occurs abroad.

The royalty vs. personal services distinction

Because royalty income and personal services income get confused often — and carry different tax consequences — Korean guidance sets out a comparative framework:

For design and engineering services specifically, the same comparative logic applies.

Royalty indicators: the fee is for the right to repeatedly use or reproduce a design drawing prepared for an unspecified range of users; the drawing contains undisclosed technical information (know-how); the design service involves transferring undisclosed technical information — even when delivered in the form of a design drawing — that still counts as a royalty; and where the relative value of the underlying technical content is high, the payment is treated as royalty income even if labeled as a service fee.

Personal services indicators: the service is a standardized professional service — the kind where the provider applies professional knowledge or a special skill they ordinarily hold, in the way a designer typically would; a drawing produced by a design professional using their own professional knowledge; the recipient actually bore the direct and indirect costs of development; and the recipient (rather than the provider) bears the risk and responsibility for whether the underlying development effort succeeds.

For other technical services: payment that's a necessary incidental component of providing a patent or know-how is treated as royalty income; payment that reflects actual personnel and material costs incurred in providing a service is treated as personal services income.

Where royalty and personal services elements are mixed in one arrangement: if the personal services portion is auxiliary and the amount isn't large, the entire payment is treated as royalty income; if the personal services portion is reasonably separable, isn't merely auxiliary to the royalty, and represents a significant amount, it's split and taxed under each respective category.

For drawings incidental to equipment imports: simple design drawings incidental to importing machinery are treated as personal services income — but if the contract price for the machinery already bundles in installation, assembly, drawings, and test-run costs, the whole amount is instead treated as part of the machinery's price.

Distinguishing "know-how" from independent personal services: "information or know-how" means undisclosed technical information — regardless of whether it could be the subject of intellectual property rights — that's necessary for the industrial reproduction of a product or process, and that already existed before being provided. An engineer's standardized professional services, or non-standardized services performed using the professional knowledge or skill ordinarily held by similar service providers ("technical support services"), are instead classified as personal services income. Whether a given arrangement is "information or know-how" turns particularly on: whether confidentiality provisions or special safeguards against third-party disclosure exist; whether the technical service fee substantially exceeds the cost of providing the service plus an ordinary margin; and whether the recipient is required to play a special role in applying the provided information, or whether the provider guarantees the results of applying it. Where a technology-import contract with a foreign corporation mixes information/know-how with technical support services, the total payment is either treated entirely as income for the "main" component (if one component is clearly primary and the other merely incidental), or split and calculated separately based on relative cost, working hours, weekly wages, or another reasonable basis.

The "doesn't yet exist" test. A useful cross-check comes from OECD guidance on this exact distinction: a payment isn't consideration for the use of, or right to use, a design, model, or plan if it's paid for developing a design, model, or plan that doesn't already exist — that payment is instead consideration for a service that will result in the design, and is treated as business income, even where the developer keeps all rights (including copyright) in what it creates. The classification only flips to royalty income where the owner of an already-developed design or plan simply grants someone the right to modify or reproduce it, without performing genuinely new work. Korean tax tribunal and court decisions applying this same logic have found that payments for commissioned R&D — where a foreign research provider is paid to develop technology or materials that don't yet exist, based on cost-plus compensation, bearing responsibility for defects in the deliverable, and where the Korean commissioning company ends up owning or co-owning the resulting IP — are properly treated as personal services (business) income rather than royalties, even where the foreign provider's own pre-existing background knowledge informed the work, as long as no existing IP or know-how was itself being licensed or transferred as the substance of the payment.

Securities transfer gains

A foreign corporation's Korean-source income from transferring securities covers gains from transferring the following:

• Shares or equity interests (and other securities) issued by a domestic corporation
• Shares or equity interests issued by a foreign corporation, limited to those listed on a Korean securities market
• Other securities issued by a foreign corporation's Korean place of business

Shares and equity interests include depositary receipts and subscription rights issued on the basis of those shares; "other securities" includes securities as defined under Korea's Financial Investment Services and Capital Markets Act.

Coordination with the real estate stock rule: shares or equity interests that qualify as "real estate stock" (the capital gains category above) are excluded from this securities transfer category — except that if those same real-estate-heavy shares are listed on an exchange, they move back into this securities transfer category instead.

Practical insight: structuring an R&D commissioning arrangement for personal services treatment

A useful illustration of how much these structuring choices matter: a Korean parent company commissioned a large-scale research project — hundreds of billions of won in committed funding — from a foreign research provider, with the explicit intent that the Korean company would end up owning 100% of the resulting IP. If the arrangement is genuinely structured that way, the payments look like consideration for personal services (business income) rather than royalty income, meaning no Korean withholding obligation arises unless the foreign provider has a Korean permanent establishment.

Given the size of the funding involved, the practical advice was to build a paper trail that survives a later audit challenge, not just satisfy the classification test on paper:

• Document, contemporaneously, that the payment compensates a professional research team for substantial time and cost spent developing genuinely new technology — not for accessing something that already exists
• Confirm the foreign provider isn't supplying its own undisclosed technology, know-how, or patents as an input to the research, or basing the work on its own pre-existing proprietary IP
• Make sure the Korean company's ownership of the resulting IP is real in substance, not just formal — control over the research direction, who bears the risk if the research fails, and who ultimately holds the exclusive right to use and commercialize the results should all point the same direction as the contract's IP-ownership clause

Practical insight: one withholding decision can become the precedent you have to defend later

A related pattern worth watching for: a company grants a withholding exemption to one foreign research partner based on a genuine, fact-specific finding that the arrangement is personal services rather than royalty income — for instance, a foreign university under a sponsored-research agreement, where funding tracked project phases and cost rather than IP usage, and the university's obligations were research effort rather than guaranteed results.

Later, a different foreign research partner — facing a proposed withholding position the company considers correct on its own facts — points back to that earlier exemption as precedent and argues its own arrangement is "substantively the same kind of research services agreement," even where real differences exist (for example, whether the foreign party's own pre-existing know-how or IP is actually being used or transferred as part of the work, versus a case where it clearly isn't).

The practical lesson: each classification decision should be documented well enough, on its own specific facts, to explain later why it doesn't set a blanket rule for every research-funding arrangement that follows — otherwise an early favorable ruling for one counterparty becomes leverage for every subsequent counterparty to argue for the same treatment, whether or not the underlying facts actually match.

Practical insight: document the royalty/personal-services line before you sign, not after

Given how much rides on which side of the royalty/personal-services line a payment falls — different rates, different treaty treatment, different withholding mechanics — waiting until an audit to characterize a technology transfer or engineering arrangement is a costly way to find out which category applies. Structuring the underlying contract with the comparative factors above in mind (confidentiality provisions, how the fee is calculated, who bears development risk, whether results are guaranteed) is far cheaper than reconstructing the argument after the fact.

Practical insight: a design drawing isn't automatically a royalty, or automatically a service

What foreign companies often get wrong

1. Assuming a fee is automatically personal services income just because it's labeled a "service fee" in the contract, without checking whether it functions as royalty consideration.
2. Overlooking that certain specialized professional/technical services are deemed Korean-source under a treaty even when physically performed outside Korea.
3. Missing the real-estate-heavy company share test when a Korean subsidiary being sold holds substantial land or property, and defaulting to ordinary securities transfer treatment instead.
4. Bundling equipment installation, drawings, and test-run costs into a machinery price without recognizing that the whole bundle then gets treated as business income rather than personal services or royalty income.

Frequently asked questions

Practical checklist

Before classifying a cross-border services, technology, or asset-transfer payment, confirm:

• Whether the arrangement conveys undisclosed technical information (pointing toward royalty) or standardized professional expertise (pointing toward personal services)
• Whether confidentiality provisions, fee calculation methods, and risk/results-guarantee terms support your intended classification
• Whether a Korean subsidiary being sold meets the 50% real-estate-asset threshold for real-estate-stock treatment, and whether it's listed (which would exclude it from that category)
• Whether bundled equipment/installation/drawing costs should be classified as business income rather than split into service and royalty components
• Whether airfare, accommodation, or meal costs paid directly to third-party providers can be excluded from a personal services payment

Key takeaways

Personal services, capital gains, royalties, and securities transfer income each carry detailed classification rules, but the royalty-versus-personal-services distinction is the one most likely to have real financial consequences and the least likely to be obvious from a contract's label alone. Building the classification analysis into contract structuring — rather than reconstructing it during an audit — is the difference between a defensible position and an expensive one.

Related guides

• Korean-Source Income for Foreign Corporations: Interest, Dividends, Real Estate, and Business Income
• What Income Is Taxed for Foreign Corporations in Korea, and How?
• Withholding Tax in Korea: What Foreign Businesses Need to Know (coming soon)
• Transfer Pricing for Korean Subsidiaries (coming soon)