A Korean trading subsidiary under a Singapore holding company: set-up and tax

A trading company in Korea under a Singapore parent is a familiar structure. European and American groups use Singapore as their Asia-Pacific headquarters and hang each country’s sales company beneath it. Asian groups and founders choose Singapore for its banking, its contracts and its treaty network. The Korean subsidiary imports and sells; the Singapore company owns it, often supplies it, sometimes owns the brand, and collects the profits.

The structure is sound, but its value depends on details on both sides. Korea will want to see that the Singapore company is the beneficial owner (실질귀속자, siljil gwisokja) of the dividends it receives, and the Korean tax office will look hard at the prices the subsidiary pays its parent. This guide follows the money from incorporation to exit, with the Korean statutes behind each step: the Foreign Investment Promotion Act, the Corporate Tax Act, the Adjustment of International Taxes Act and the Customs Act, together with the Korea–Singapore tax treaty (한·싱가포르 조세조약) as updated with effect from 2020.

Why Singapore, and why not

For a group selling into Korea, Singapore offers three things. The first is the treaty: dividends at 10%, royalties at 5% — among the lowest royalty rates in Korea’s treaty network — and interest at 10%. The second is the home side: Singapore charges corporate tax at 17%, has no withholding tax on dividends, and exempts most foreign dividends it receives. The third is practical: banks, lawyers and auditors in Seoul are used to Singapore parents, ACRA documents are easy to obtain and apostille, and regional management can sit in one place.

The drawbacks are cost and scrutiny. A Singapore company that is just a registered address and a nominee director will struggle to obtain a certificate of residence, may fail Korea’s beneficial-ownership test and, since the treaty now carries a principal purpose test, may lose treaty benefits altogether. Substance — directors who decide, people who work, an office that exists — is not a formality. If the group has no reason to be in Singapore other than tax, a direct holding from the home country may be cheaper and safer; see Korea, Singapore or Japan for the regional comparison.

Setting up the Korean subsidiary

The Korean company is usually a chusik hoesa (주식회사, jusik hoesa), although a yuhan hoesa (유한회사, yuhan hoesa) works for a wholly-owned subsidiary that values simplicity; see jusik hoesa or yuhan hoesa. The Singapore parent invests as a foreign investor under Article 5 of the Foreign Investment Promotion Act: a foreign investment notification is filed with a foreign exchange bank before the capital arrives, the capital is wired in from the parent’s own account, and the company is registered as a foreign-invested company once incorporated. An investment of at least KRW 100 million is what makes the company a foreign-invested company and opens the D-8 visa for a seconded manager; see the KRW 100 million rule.

After incorporation, a trading company needs its business registration with the tax office, VAT registration as a general taxpayer, a customs clearance code (통관고유부호) from Korea Customs Service so it can act as importer of record, and usually a trade business number from the Korea International Trade Association. Some goods need product-specific permits on top — food, cosmetics, medical devices, electrical products; see importing into Korea. Expect four to six weeks from apostilled documents to an operating company with a bank account.

Singapore joined the Apostille Convention in 2021, so documents no longer need consular legalisation.

Documents need Korean translations, usually certified by the translator. Korean banks will also ask for the ultimate beneficial owners — individuals holding 25% or more, traced through the Singapore company — under anti-money-laundering rules. Have the ownership chart, passports and proof of address ready before the bank appointment; see opening a Korean bank account.

Korean tax on the trading company

The Korean subsidiary pays corporate tax (법인세, beobinse) on its worldwide profit under the Corporate Tax Act at 10% up to KRW 200 million, 20% up to KRW 20 billion, 22% up to KRW 300 billion and 25% above, plus local income tax (지방소득세, jibang sodeukse) of one tenth of those amounts. A trading company making KRW 1 billion of taxable profit pays KRW 198 million in total, an effective 19.8%. It collects and remits 10% VAT on its sales and recovers VAT on its imports and costs; see VAT for foreign companies and Korean corporate tax in 2026.

Groups within scope of the global minimum tax — consolidated revenue of EUR 750 million or more — must also consider Korea’s income inclusion and undertaxed profits rules and Singapore’s domestic top-up tax and income inclusion rule, in force from 2025. A Korean trading company paying the normal rates rarely produces a top-up, but the Singapore parent’s own low-taxed income can.

Dividends to Singapore

Korean law withholds tax on dividends paid to a foreign company at 20% plus local income tax — 22% in total — under Article 98 of the Corporate Tax Act. The Korea–Singapore treaty caps it at 10% if the Singapore company beneficially owns at least 25% of the Korean company’s capital, and 15% otherwise. The Korean company withholds and pays the tax to the tax office by the tenth of the following month.

Before the dividend is declared, the Korean company sets aside a legal reserve (이익준비금, iik junbigeum) of at least one tenth of the cash dividend until the reserve reaches half of the share capital, under Article 458 of the Commercial Act, and the shareholders approve the financial statements and the dividend. Interim dividends are possible if the articles allow them. The remittance goes through the company’s foreign exchange bank with the resolution, the financial statements and the tax payment evidence; the Foreign Investment Promotion Act guarantees the transfer of dividends on registered foreign investment. See dividend withholding tax in Korea for the mechanics.

Claiming the treaty: beneficial ownership

Treaty rates are not automatic. Under Article 98-6 of the Corporate Tax Act, the Singapore company gives the Korean company, before payment, an application for the reduced treaty rate (제한세율 적용신청서, jehan seyul jeogyong sincheongseo) together with its certificate of residence and documents showing that it is the beneficial owner of the income. If the application is missing or the beneficial owner cannot be identified, the Korean company must withhold 22%. Since 2026, withholding agents also file the applications and supporting documents with their tax office after the year end, so the tax office sees them as a matter of routine.

Beneficial ownership is a substance test. Korean courts apply the substance-over-form principle and have repeatedly denied treaty rates to holding companies that had no staff, no decision-making and no other business, treating the dividends as owned by the shareholders behind them. The updated treaty adds an entitlement to benefits (혜택의 제한) article with a principal purpose test: benefits can be denied if obtaining them was one of the principal purposes of an arrangement. A Singapore regional headquarters with management, staff and other subsidiaries passes easily. A shelf company set up the month before the Korean subsidiary does not. If the treaty rate was wrongly refused, the Singapore company can claim the excess back by a request for correction (경정청구, gyeongjeong cheonggu) within five years.

Royalties, interest and service fees

A Singapore parent that owns the brand or technology can charge the Korean subsidiary a royalty. Korea withholds 20% plus local income tax under domestic law; the treaty caps it at 5%, one of the lowest rates in Korea’s treaties, and since the 2019 update payments for the use of industrial, commercial or scientific equipment are no longer royalties at all. The royalty is deductible in Korea if it is at arm’s length and the IP is really owned and managed in Singapore. Korean tax auditors look for the development and management of the brand — the DEMPE () functions — and challenge royalties paid to a company that merely holds legal title.

Interest on a loan from Singapore is capped at 10% by the treaty. Deductions are limited by thin capitalisation rules: interest on debt from a foreign controlling shareholder above twice its share of equity is not deductible and is treated as a dividend; separate rules cap net interest deductions and require an arm’s-length rate. Remember the foreign exchange side — a group loan into Korea is reported to the bank before drawing; see Korea’s foreign exchange rules.

Management and service fees paid to Singapore are generally business profits: Korea does not withhold on them if the Singapore company has no permanent establishment in Korea and the services are performed outside Korea. They must still be supported by real services, a written agreement, a cost-based allocation and evidence of benefit. Korean auditors disallow fees for shareholder activities — the parent’s own governance, consolidation and investor relations.

Transfer pricing for a trading subsidiary

The largest number in most structures is not the dividend but the price at which the Korean company buys goods from the group. Under Article 7 of the Adjustment of International Taxes Act, the tax office can adjust related-party prices to the arm’s-length price (정상가격, jeongsang gagyeok). A buy-sell distributor that takes limited risks is expected to earn a steady, modest operating margin, benchmarked against comparable Korean distributors; persistent losses in a distributor invite an audit and an adjustment that moves profit back to Korea.

Large companies — cross-border related-party transactions above KRW 50 billion and revenue above KRW 100 billion — must file a master file and local file each year under Article 16; smaller ones still file a summary of international transactions with the corporate tax return and should keep a transfer-pricing policy. An advance pricing agreement with the National Tax Service is available for larger flows.

Customs sees the same price from the other side. Under Article 30 of the Customs Act, duty is charged on the transaction value, and Korea Customs Service examines whether a relationship between buyer and seller has influenced the price. A transfer-pricing adjustment that lowers the import price after the event can trigger a customs question, and a royalty paid for the right to sell imported goods may be added to the customs value. Groups with large flows can agree the method in advance through an advance customs valuation arrangement (과세가격 결정방법 사전심사) under Article 37. See Korean customs duties.

Trade agreements: origin follows the goods

A common misunderstanding is that a Singapore holding brings the Korea–Singapore free trade agreement with it. It does not. Preferential tariffs depend on where the goods were made, not where the owner is. Goods manufactured in Singapore can enter Korea at preferential rates under the Korea–Singapore FTA (한·싱가포르 FTA) in force since 2006 or under RCEP, with a certificate or declaration of origin; goods made in Germany, China or Vietnam and invoiced through Singapore keep their own origin and use whatever agreement Korea has with that country. Invoicing through Singapore is allowed under most agreements’ third-country invoicing rules, but the origin documents must follow the goods.

The same point applies to the permanent establishment (고정사업장, gojeong saeopjang) analysis. If the Korean company only markets for the Singapore company, which sells directly to Korean customers, the Korean company may be a dependent agent and the Singapore company taxable in Korea on the sales. A genuine buy-sell model, in which the Korean company buys, owns and resells the goods in its own name, avoids that.

Singapore tax on what comes back

Singapore taxes companies on income accrued in or derived from Singapore and on foreign income received in Singapore. Foreign dividends received are exempt under section 13(8) of the Income Tax Act 1947 if, broadly, the income was subject to tax in the paying jurisdiction and the headline corporate tax rate there is at least 15% — Korea’s top rate of 25% satisfies the second condition, and Korean corporate tax on the subsidiary’s profits satisfies the first. Singapore has no withholding tax on dividends paid by a Singapore company, so the money can move on to the group’s shareholders without further tax in Singapore.

Royalties and interest received from Korea are taxable in Singapore at 17%, with a credit for the Korean withholding tax, unless an incentive applies. Gains on a sale of shares are not taxed in Singapore if they are capital in nature, and gains on shares held for 24 months with at least 20% ownership are safe-harboured; since 2024, gains on foreign assets received by companies without economic substance in Singapore can be taxed under section 10L. This is a summary; Singapore advice should be taken on the Singapore side.

Exit: selling or winding up

Korea taxes a foreign company that sells shares in a Korean company at the lower of 11% of the sale price or 22% of the gain, including local income tax, collected by withholding from the buyer. The Singapore treaty exempts gains only where the seller and related parties hold less than 25% of a company that is not rich in Korean land — so a Singapore parent selling a wholly-owned Korean subsidiary is generally taxable in Korea. A sale of the Singapore company itself, rather than the Korean one, can still be taxed in Korea in some cases and must be reported.

Other routes are a capital reduction (감자, gamja), which returns paid-in capital with tax only on the excess over the shareholder’s cost, and a liquidation, in which the surplus is treated as a dividend; both are notified as changes to the foreign investment and remitted through the bank. See closing a Korean company.

Founders who live in Korea

The structure looks different when the people behind the Singapore company are Korean tax residents. A Korean resident who owns a foreign company must report the investment under the foreign exchange rules, and the controlled foreign company (특정외국법인, teukjeong oeguk beobin) rules in Article 27 of the Adjustment of International Taxes Act can tax the Singapore company’s undistributed profits in Korea if its effective tax burden is at or below 70% of Korea’s top corporate rate and the shareholder holds 10% or more. An active business with substance in Singapore is generally outside the rules, but a holding whose income is passive dividends and royalties is the classic CFC case. The investment also stops being straightforward foreign investment for visa and incentive purposes. Take Korean advice before using Singapore as a holding for a Korean-resident founder’s business.

A worked example

A Swiss maker of professional kitchen equipment runs Asia-Pacific from a Singapore company with twelve staff. It sets up a Korean jusik hoesa with KRW 300 million of capital, wholly owned by the Singapore company, to import from Switzerland and sell to hotel groups and restaurant chains. The Singapore company owns the Asia-Pacific distribution rights and invoices the Korean company for the equipment.

In year three the Korean company makes KRW 1.2 billion of taxable profit after paying a 3% fee to Singapore for regional marketing support. Korean corporate tax and local income tax come to KRW 242 million. The company sets aside the legal reserve and pays a KRW 800 million dividend; Korea withholds 10%, KRW 80 million, on the strength of the Singapore company’s certificate of residence and beneficial-ownership application. Singapore exempts the dividend on receipt. The marketing fee is supported by an intercompany agreement and a cost-plus calculation, and the Korean company’s operating margin sits within the range of comparable Korean distributors. On the customs side, the Swiss origin of the goods gives preferential rates under the Korea–EFTA agreement — not the Singapore one.

Singapore makes the Korean structure efficient. It does not make it invisible.

Voixa Korea

Mistakes we see

1. A Singapore shell with no staff or decisions, then 22% withholding.
2. No reduced-rate application on file before the first dividend.
3. Royalties to a company that only holds legal title to the brand.
4. A distributor making losses year after year while the parent books the margin.
5. Expecting the Korea–Singapore FTA to cover goods made elsewhere.
6. Lowering transfer prices after import without thinking about customs.
7. Korean-resident founders using the structure without checking the CFC rules.

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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