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National Tax Service
For Press Release on Thursday, February 25, 2010.
Guide to corporate tax return filing for foreign taxpayers and
submission of international transaction-related documents
- All corporations which have international transaction should submit related documents.

All corporations including domestic and foreign corporations who trade with
foreign related parties or who has established and operated a local corporation
in a foreign country are subject to submit all international transaction-related
documents (ie. List of local corporations in a foreign country, etc)

Foreign corporations with their business year ending at the end of 2009 should
voluntarily report and pay their taxes by March 31, 2010, as domestic
corporations do.
Submission of International transaction-related documents and local
corporations in a foreign country-related documents
1.
 All corporations including domestic and foreign corporations who trade with
foreign related parties or who operate a local corporation in a foreign country are
subject to submit following documents when they file corporate tax returns.
 Specification of International Transactions

All corporations including domestic and foreign corporations which have
transaction with foreign related parties* should submit a 「Specification of
International Transactions」 (Form 8, Enforcement Regulations of the Adjustment
of International Taxes Act).
* Foreign related parties: a foreign party who owns 50% or more of a domestic
corporation or who has actual decision-making power on the business plan.

If the amount of goods and services traded with foreign related parties is more
than the specific amount*, corporations should submit a 「Statement of Arm’s
length Price Computation Method」 and a 「Summary of Income Statement
of Foreign Related Parties」.
* The total trade amount of the year with foreign related parties: goods more than 5
billion KRW or services more than 500 million KRW (If the trade amount with each
party is 1 billion KRW or less for goods or 100 million KRW or less for services, then
the corporation is exempted from submitting the fore-mentioned documents related
with the party.)

For the transfer pricing purpose, the NTS asks corporations to submit related
documents. If a corporation fails to submit them, a penalty of 30 million KRW
or less can be charged. (The article 12 of the Adjustment of International Taxes Act)
 Local corporations in a foreign country-related documents

For all domestic corporations whose business year ending at the end of 2009, if
they have investment in a local cooperation in a foreign country, they are
subject to submit a 「List of local corporations in a foreign country」. If such
domestic corporations established overseas branches, oversea offices or
overseas construction sites, then they should submit a 「List of Overseas
Branches」. A domestic corporation who has invested 10% or more (including
loans) of the total capital of a local corporation in a foreign country should also
submit a 「Statement of Financial Condition of the local corporation in the
foreign country」.
*「Subjects and forms of required annex of the local corporation in a foreign country
and branches」(NTS notice 2009-92, Sep.1, 2009)
 If a domestic corporation who has foreign direct investment fails to submit local
corporations in a foreign country-related documents, a penalty of 10 million KRW or less
will be charged starting from the next year. (The article 121-3 of the Corporate Tax Act,
covering taxation year starting from January 1, 2010 )

For domestic corporations who has established or liquidated a local corporation
in a foreign country, they are also subject to report the amount of foreign
investment, remaining assets, etc when they file corporate tax return.
 Documents related with specific foreign corporations’ retained earningsrelated documents

For domestic corporations who own twenty percent or more of the total outstanding stocks or equity contribution of a specific foreign corporation, they
should submit 「Decisive Statement of Applicable tax adjustment of the
corporation in a Tax Haven」(The article 17~20 of the Adjustment of International Taxes
Act, Article 9 and 10-2 of Enforcement Regulations of the Adjustment of International Taxes
Act).
 The NTS sent corporations who have international transactions or who have
established and operated a local corporation in a foreign country a notice that they
are subject to submission of required documents so that they are not disadvantaged,
from not-knowing (25,064 notices in total). The notice includes information of such
documents as international transaction, a local corporation in a foreign country, tax
haven, etc.
2.
March 31, due date for corporate tax return filing for foreign companies

Foreign corporations subject to corporate tax return (as of Dec.,2009)

997 foreign corporations of which headquarters or main office is in a foreign country

5,500 foreign invested corporations which are specified in the Foreign Investment
Promotion Act
 Calculating the tax base and tax rate of a corporate tax of a foreign corporation is
the same as those of a domestic corporation, except the cases specified below by the
Corporate Tax Act.

All domestic corporations including foreign-invested corporations are subject to file all
income generated in Korea as well as overseas. However, foreign corporations which
have a domestic place of business in Korea are subject to file corporate tax return for
the income generated from sources in Korea only. (Article 2 and 93 of the Corporate
Tax ACT)

For the common expense of the headquarters of a foreign corporation which has a
reasonable connection with the foreign corporation in Korea, the common expense can
be allotted to the foreign corporation in Korea. (Article 130 of the Enforcement Decree
of the Corporate Tax Act)
* 「 Division method and required documents for common expenses of the
headquarters of the foreign corporation」(NTS notice 2009-90, Sep.1, 2009)

Where a foreign-invested corporation meets such standards as carrying on a business
accompanying a high-level technology or locating in the foreign investment area, it
shall be eligible for the reduction of or exemption form corporate tax. (Article 121-2 of
the Restriction of Special Taxation Act)
 Checklist for 2010 corporate tax return

Foreign corporations will also be subject to high rate of penalty tax unless they file
corporate tax return within the due date. The penalty on unduly non-filing will be
chosen between the bigger of 14/10,000 (7/10,000) of the revenue and 40(20)% of the
calculated tax.

If a corporate cannot file corporate tax return by March 31, 2010 due to a natural
disaster, etc., it can apply for an extension request of the filing period to a district tax
office by March 29, 2010 (Article 6 of the Framework Act on National Taxes, article 2
of Enforcement Decree of the Framework Act on National Taxes). When a foreign
corporation cannot file corporate tax return for the reason that the headquarters of the
foreign corporation has not settled accounts, it can also apply for an extension request
of the filing period by March 2, 2010 (Article 6 of the Framework Act on National
Taxes, article 136 of the Corporate Tax Act)

For the common expense of the headquarters of a foreign corporation which has a
reasonable connection with the foreign corporation in Korea, the common expense
allotted to the foreign corporation in Korea cannot be deemed expense, if a foreign
corporate fails to submit an 「Invoice of the division of the common expenses」 and
its supporting evidence. (Article 130 of the Enforcement Decree of the Corporate Tax
Act)

When a foreign-invested corporation runs or has shares in a business from which
foreign investment is restricted, it should submit a「Report on management of
restricted business」with corporate tax return.
*「Subjects and forms for reporting management of foreign-investment-restricted
business」(NTS notice 2009-97, Oct.1, 2009)
Customized taxpayers’ services
3.
 On February 25, the NTS holds a session with foreign companies to provide them
with useful information such as checklist for corporate tax return and major changes
in corporate tax law for their tax filing.
Sessions for foreign taxpayers’ corporate tax return filing
Time & Date
14:00~16:00, February 25, 2010
Venue
2nd Fl., The NTS Satisfaction Center,
Gangnam-gu, Samsung-dong
Participants
About 200 tax managers from foreign companies
Reference
English interpretation service provided
 The NTS published「Taxation Guide for Foreign Corporation」and 「Taxation
Guide for Foreign-invested Corporation」and posted them on the NTS website. The
guides provide the scope of tax duty, taxation support, and other useful information.
-
「Taxation Guide for Foreign Corporation」 includes information on how to
calculate Korean source income and tax base as well as how to report taxes
regarding international transactions for foreign corporations.
-
「Taxation Guide for Foreign-invested Corporation」explains taxation support
for foreign investment, transfer pricing, tax haven and thin capitalization rule
for foreign-invested corporations.
 For more information on corporate tax return and international transaction –related
documents, foreign corporations can visit the Q&A section on the NTS’ English
website (www.nts.go.kr/eng) or call the NTS helpline call center at 126 or contact
the Helpline for Foreigners at 1588-0560.
Attachment: Revised Corporate Tax Information for 2010 Tax Filing
Publication
Wednesday, February 24, 2010
Date
Director in
Charge
LEE, Dong-shin
(02-397-1431)
Drafting
Division
Deputy
Director in
Charge
International Tax Resource Management
Division
CHO, Sehee
(Tel: 02-397-1442)
Attachment: Revised Corporate Tax Information for 2010 Tax Filing
1. Corporate tax rate and withholding tax rate are reduced.

For the corporations whose tax base for year 2009 is over 200 million KRW,
corporate tax rate is reduced to 22%.
Business Yr
Year 2008
Year 2009
Year 2010
Over 200 million KRW
25%
22%
22%
200 million KRW or less
11%
11%
10%
Tax Base

For the following income which is paid to foreign corporations for the first time
since January 1, 2009, withholding tax rate is reduced.
a. Interest income, dividend income, royalty income, other income: 25% 20%
b. Transfer income, transfer income derived from securities: 10%, 25%  10%, 20%
2. When a listed foreign parent company granted stock options to the employees of its
non-listed Korean subsidiary, the cost charged back shall be admitted as deductible
expenses. (Article 129(1)7 of the Enforcement Decree of the Corporate Tax Act)

When a listed foreign parent company(1) or a foreign corporation(2) granted stock
options to the employees of its non-listed Korean subsidiary, and the parent
company charged back the cost to the Korean subsidiary, the cost shall be
admitted as deductible expenses.
(1) The foreign parent company should be listed and should own 90% of more stocks of the
Korean non-listed subsidiary.
(2) For a Korean branch of a foreign company, the foreign corporation should be listed. If not,
the parent company which owns 90% or more stocks of the foreign company should be listed.

Stock option subject to reimbursement should be limited to the income paid for
the labor in Korea, and reimbursement should be mentioned in a written
contract prior in advance.
* The cost charged back to Korea on and after February 4, 2009 shall be deductible.
3. Barring transfer pricing of a foreign corporations’ domestic business place in Korea
(Article 2 and 4 of the Adjustment of International Taxes Act)
- Since transaction between domestic corporations and domestic business places
of a foreign corporation are under jurisdiction of Korean taxation, repudiating
of wrongful act instead of transfer pricing shall be applied for the business year
starting from January 1st of 2009 and after.
4. Clarifying the calculation method of non-deductible expenses for sister companies
of foreign-invested corporations when applying thin capitalization (Article 24-3 and 25
of the Enforcement Decree of the Adjustment of International Taxes Act )

If (1) an ‘A’ foreign corporation has invested 50% or more equity into a ‘B’
foreign corporation and (2) if ‘A’ is a controlling shareholder of a ‘C’ company
residing in Korea, then the sum of ‘A’s total investment into ‘C’ and the total
borrowed amount from ‘A’ and ‘B’ to ‘C’ shall be under thin capitalization rule.

For making an income disposition unto the ‘A’ and ‘B’, it shall be divided in
proportion to the ratio of the borrowings.
* It is applicable to the taxation year to which February 4, 2009 belong.
5. Introducing daily exchange rate as an alternative method when denominating
foreign currency loans into Korean won for thin cap application to financial
business

In denominating foreign currency loans into Korean won for thin cap
application to financial business, taxpayers can select to apply either (1) the
exchange rate as of the final day of the business year, or (2) a daily exchange
rate. (Article 24-5 of the Enforcement Decree of the Adjustment of International Taxes Act )

The selected method shall remain the same for 5 years at least.
* It is applicable to the taxation year after December 31, 2009.