Dividend withholding tax in Korea: treaty rates by country

A Korean company pays corporate tax on its profit and then decides to pay a dividend to its foreign shareholder. At the moment of payment it must withhold tax and pay it to the tax office by the 10th of the following month. How much depends on three things: where the shareholder is resident, how much of the company it owns, and whether the right forms reached the company in time.

This guide covers the domestic rate and its legal basis, the treaty rates for the countries most of our clients invest from, the beneficial-owner procedure, the Korean courts’ view of holding companies, refunds, and the Commercial Act rules on when a dividend can be paid at all. It ends with the alternatives — royalties, interest, service fees and capital returns — and what each costs.

The domestic rate and where it comes from

Dividends paid by a Korean company to a foreign shareholder are Korean-source income (국내원천소득, guknae woncheon sodeuk) under Article 93 of the Corporate Tax Act for corporate shareholders and Article 119 of the Income Tax Act for individuals. A foreign shareholder without a permanent establishment in Korea does not file a Korean return for them; the tax is collected entirely by withholding (원천징수, woncheon jingsu).

The rate is 20% of the gross dividend under Article 98 of the Corporate Tax Act, or Article 156 of the Income Tax Act for individuals. On top of it the company withholds local income tax (지방소득세, jibang sodeukse) at one-tenth of the national tax under the Local Tax Act, which brings the total to 22%. The company files a withholding return and pays both taxes by the 10th of the month after the payment, and issues a payment statement to the tax office.

For a company in the first corporate tax bracket, the combined burden without a treaty is therefore about 30.6%: 11% corporate tax, then 22% of the remaining 89. With a 5% treaty rate plus local tax, the same profit loses only about 16% in total. The treaty is worth more than most tax planning a small company will ever do.

Treaty rates for common investor countries

Korea has tax treaties with more than 90 countries. Almost all follow the OECD model in Article 10: a lower rate for a substantial corporate shareholding, a higher one for portfolio investors and individuals. The table shows the national rates; whether local income tax is added on top depends on how the particular treaty treats Korea’s local tax, and Korean practice is to add it unless the treaty clearly includes it.

Source: PwC Worldwide Tax Summaries, Korea. Individual treaties add conditions; the US rate, for example, also depends on the payer’s income mix.

Three details matter in practice. First, the holding threshold is usually measured in capital or voting power and, in some treaties, must be held directly by a company — an individual owning 100% still gets the portfolio rate. Second, some treaties require the holding to exist for a minimum period before the dividend. Third, the treaty of the shareholder’s residence applies, not the treaty of its nationality: a UK citizen living in Dubai invests under the UAE treaty, if at all.

Two taxes stand between a Korean profit and a foreign shareholder. Treaties only cut the second one if you let them.

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How to get the treaty rate

Korea does not apply treaty rates automatically. The procedure is in Article 98-6 of the Corporate Tax Act for corporate shareholders and Article 156-6 of the Income Tax Act for individuals. The shareholder, as beneficial owner (실질귀속자, siljil gwisokja), files an application for the limited tax rate (제한세율 적용신청서, jehan seyul jeogyong sincheongseo) with the paying company before the payment. The company keeps it on file and withholds at the treaty rate.

1. Confirm that the shareholder is resident in the treaty country and is the beneficial owner of the dividend — not a nominee or agent for someone else.
2. Obtain a certificate of tax residence from the shareholder’s home tax authority. Korea expects it to be recent; one issued for the current year is safest.
3. Complete the Korean application form, giving the shareholder’s name, address, tax number, residence country and the treaty rate claimed, and sign it.
4. Deliver the form and certificate to the Korean company before the dividend is paid.
5. The company withholds at the treaty rate and reports the payment and the application to the tax office with its withholding return.

An application generally stays valid for three years unless the shareholder’s details change. A new one is needed when the shareholder changes residence, ownership changes so that the reduced-rate threshold is crossed, or the three years run out.

Beneficial ownership and holding companies

Korea has a long memory for holding company structures. The Framework Act on National Taxes and Article 3 of the Adjustment of International Taxes Act both apply substance over form (실질과세, siljil gwase): the tax office looks at who in fact owns and controls the income, not whose name appears on the share register. Treaties themselves restrict the reduced rate to the beneficial owner, and most now carry the principal purpose test introduced by the OECD Multilateral Instrument.

The Korean Supreme Court applied the doctrine in the Lone Star litigation of the 2000s and 2010s, denying treaty benefits to Belgian and Luxembourg holding companies that it found to be conduits for a US fund. The lesson tax offices drew is simple: a holding company in a treaty-friendly country with no staff, no premises and no decision-making of its own will be ignored, and the treaty of the ultimate owner — or none — will apply.

For a small foreign-owned business the practical rule is the same in reverse: hold the Korean company from the place where the real owner actually lives or operates. A founder resident in Spain holding through a Spanish SL with genuine activity is fine. A founder resident in a non-treaty country holding through a letterbox company somewhere convenient is not.

When a Korean company can pay a dividend

Corporate law limits dividends before tax law prices them. Under Article 462 of the Commercial Act, a Jusik Hoesa can distribute only distributable profits (배당가능이익, baedang ganeung iik): net assets minus capital, the legal reserve and other reserves. A company with accumulated losses cannot pay a dividend until they are covered, however profitable the current year.

Each cash dividend requires a transfer to the legal reserve (이익준비금, iik junbigeum) of at least one-tenth of the amount until the reserve reaches half of the share capital, under Article 458. The annual dividend is declared by the shareholders’ meeting approving the accounts, or by the board where the articles allow and an external auditor has signed off. Interim dividends (중간배당, junggan baedang) once a year by board resolution are possible if the articles provide for them, under Article 462-3. The company must pay within one month of the resolution unless the resolution says otherwise.

A Yuhan Hoesa follows similar rules under the Commercial Act’s provisions on limited companies, with the members’ meeting declaring the dividend.

Getting the money out of Korea

The remittance itself goes through a Korean foreign exchange bank. For a company registered under the Foreign Investment Promotion Act, the right to remit dividends is guaranteed by Article 3 of that Act, and the bank processes the transfer against the shareholders’ or board resolution, the financial statements and evidence that the withholding tax has been paid or will be. A company not registered as a foreign investment can still remit, but the bank may ask for more documentation under the Foreign Exchange Transactions Act.

Dividend timeline for a calendar-year company.

A worked example

A German GmbH owns 100% of a Seoul Jusik Hoesa that makes a taxable profit of KRW 400 million in 2026. Corporate tax and local income tax come to KRW 66 million (11% on the first 200 million, 22% on the next 200 million), leaving KRW 334 million. The company transfers 10% of the planned dividend to the legal reserve and declares a dividend of KRW 300 million.

KRW. The difference of KRW 49.5 million is the value of one form filed on time.

If the form arrived after the payment, the company has already withheld KRW 66 million. The GmbH can recover the excess KRW 49.5 million, but only through a refund claim and only after the tax office has reviewed it.

When the shareholder moves to Korea

Founders who come to Korea on a D-8 investor visa often become Korean tax residents. Under Article 1-2 of the Income Tax Act, an individual with a domicile in Korea, or a residence there for 183 days or more, is a resident (거주자, geojuja). From that point, dividends from the founder’s own Korean company are no longer non-resident income; the treaty no longer applies to them, and the domestic rules for residents take over.

For residents the company withholds 14% income tax plus 1.4% local tax — 15.4% — under Article 129 of the Income Tax Act. If the individual’s total interest and dividend income for the year exceeds KRW 20 million, the excess is added to other income and taxed at progressive rates under the comprehensive taxation of financial income (금융소득종합과세, geumyung sodeuk jonghap gwase) rules, with a gross-up and dividend tax credit to relieve part of the corporate tax already paid. For a founder drawing most of the company’s profit as dividends, this pushes the effective rate well above 15.4%, and a mix of salary and dividends is usually more efficient.

Residence is a question of fact, and the founder’s home country may also still treat them as resident. The tie-breaker in the relevant treaty then decides which country has the primary right to tax. Plan the move before the first large dividend, not after.

The other side: tax in the shareholder’s country

Korean withholding is rarely the last tax. The shareholder’s own country usually taxes the dividend too, and then gives relief for the Korean tax in one of two ways. Many countries exempt dividends from substantial foreign shareholdings entirely, typically subject to a minimum holding and a requirement that the paying company is subject to a reasonable level of tax — which a Korean company paying 11–27.5% will meet. In that case the Korean withholding is a final cost, and the treaty rate is what matters.

Other countries tax the dividend and give a credit for the Korean withholding, up to the home-country tax on the same income. In that case a high Korean rate is partly recoverable, but only if the shareholder has enough home-country tax to absorb it; excess Korean tax is wasted. Individuals in most countries fall into this second group.

Either way, the residence certificate requested for the Korean treaty application and the Korean withholding receipt issued by the company are the two documents the home-country return will need. Keep them together.

Refunds when too much was withheld

If the company withheld at 22% because the forms were missing or late, the shareholder can file a request for correction (경정청구, gyeongjeong cheonggu) with the tax office having jurisdiction over the paying company within five years of the 10th of the month after payment, under the same Article 98-6 and the Framework Act on National Taxes. The claim attaches the treaty application, the residence certificate for the year of payment and evidence of the payment and withholding. The tax office decides within two months, though queries extend that in practice.

A residence certificate covering the year of the dividend is essential, and some tax authorities issue them only for the current year. Ask for the certificate when the dividend is paid even if the forms are late, so that the refund claim can be made later.

The alternatives to dividends

Dividends are not the only way profit leaves a Korean company, and each alternative has its own withholding and deductibility position.

Domestic rates include local income tax.

Interest, royalties and service fees reduce Korean corporate tax at up to 22% and may bear lower withholding, which makes them attractive. The tax office knows this. Interest is limited by the thin-capitalisation rule in Article 22 of the Adjustment of International Taxes Act; all related-party charges must meet the arm’s-length standard and be supported by contracts and evidence that something was actually supplied. A management fee charged because the subsidiary had a good year, with no service behind it, will be disallowed and may be recharacterised as a dividend.

Selling the shares instead

A foreign shareholder that sells shares in a Korean company is taxed on the gain, by withholding by the buyer, at the lower of 11% of the sale price or 22% of the gain under the domestic rules. Many treaties give the seller’s country the exclusive right to tax such gains, except where the company’s value comes mainly from Korean real estate. The same beneficial-owner procedure applies, and a buyer who withholds too little is liable for the shortfall — which is why Korean buyers insist on the paperwork.

Mistakes we see

1. Forms after the money: the dividend is paid first and the treaty application sent later, so 22% is withheld.
2. Founder holds personally and expects the 5% corporate rate.
3. Letterbox holding companies claiming treaty rates they cannot support.
4. Dividends while losses remain, in breach of Article 462 of the Commercial Act.
5. No legal reserve transfer recorded with the dividend.
6. Management fees without substance used to strip profit, then disallowed.

Korean terms you will meet

Questions readers ask

About the author

Alexander Baranov

Founder of the BCA Group · cross-border corporate and tax adviser since 2008

Alexander advises foreign founders and groups on company formation, tax structuring and corporate law in more than 40 jurisdictions across Europe, the Gulf, Asia and Latin America. He is the author of nine books on international business and tax and writes regularly for professional finance and tax journals. He works in English, German, Spanish and Russian.

This guide is based on the Korean statutes cited in the text and on our own filings. It is reviewed when the law or official rates change.

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