The Ministry of Finance and Strategy has released a long anticipated procedure for claiming reduced withholding tax rates under tax treaties. The procedure is effective for all income payments subject to withholding tax made on or after 1 July 2012. Thekeyfeatures of theprocedure are as follows:
|-||The beneficial owner (a foreign company or a non-resident individual) is required to submit an "Application for Reduced Treaty Rate on Korean Source Income" to the withholding agent (e.g. Korean company, custodian bank etc) before payments of Korean source income are made;|
|-||When the Korean source income is paid through an overseas investment vehicle (OIV), the OIV will submit the application on behalf of its investors. The OIV is required to collect the application form from the beneficial owners, and prepare the "Report of OIV" and submit it to the withholding agent. The details of the beneficial owners required to be disclosed in the Report of OIV include name, number of shares/units and ownership percentage.|
|-||However, as an exception, qualifying public OIVs are not required to disclose details of the beneficial owners, and the number of beneficial owners by country and the respective total amount of investments are reported instead. A qualifying public OIV is a fund that has 100 or more investors, is subject to certain financial regulations in its home jurisdiction and is not specifically excluded from treaty benefits under the relevant treaty.|
|-||Qualifying foreign pension funds and qualifying non-profit foundations which do not distribute profits to its members will be deemed to be beneficial owners for the purpose of the new procedure.|
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