Tax Residency in South Korea
1. Criteria for Determining Tax Residency
According to Article 3 of the Income Tax Act of South Korea, an individual is considered a tax resident if they meet any of the following criteria:
- Physical Presence Test: Residing in Korea for more than 183 days in a calendar year.
- Domicile Test: Having a permanent home or principal place of abode in Korea.
- Citizenship Test: Being a citizen of Korea.
For entities, tax residency is determined based on the place of incorporation or management and control. A company is considered a tax resident if it is incorporated in Korea or if its management and control are exercised in Korea.
2. Impact of International Tax Treaties
South Korea has entered into numerous tax treaties with other countries to prevent double taxation and promote cross-border trade and investment. These treaties may modify or provide exceptions to the standard criteria for tax residency as defined in domestic law.
Key Provisions in Tax Treaties
- Tie-Breaker Rules: Tax treaties often include tie-breaker rules to determine tax residency in cases where an individual or entity is considered a resident of both countries under their respective domestic laws.
- Permanent Establishment: Tax treaties may define the concept of a "permanent establishment" to determine the taxability of business profits earned in one country by a resident of another country.
- Source of Income: Tax treaties may specify the rules for determining the source of income to avoid double taxation.
Modifications and Exceptions
Tax treaties may introduce modifications or exceptions to the standard criteria for tax residency to prevent double taxation and facilitate cross-border economic activities. For example, the tax treaty between South Korea and the United States provides that an individual is considered a resident of Korea if they are liable to tax in Korea because of their domicile, residence, or any other criterion of a similar nature.
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