Set-up Branch/Liaison
General information
(A) Permanent Establishment (PE)
Basically, according to The Tax Treaty between Korea and your country, the Korea office, irrespective of the name of Liaison or Branch office, shall be deemed as “Permanent Establishment(PE)” which means a fixed place of business in which the business of the Headquarter is wholly or partly carried on.
Especially, if a Korea office has, and habitually exercises in Korea, an authority to conclude contracts in the name of the Headquarter, it shall be deemed to be a PE of Headquarter.
PE shall be subject to the Korean taxes for only so much the profits as is attributable to that PE. In this case, there shall be attributed to that PE the profits which it might be expected to make if it were a distinct and separate enterprise engaged in the same or similar activities under the same or similar conditions and dealing wholly independently with the Headquarter of which it is a PE.
However, Korea office shall not be deemed as a “PE” as long as it engages in the similar activities which have a preparatory or auxiliary character for the Headquarter such as
■ l the use of facilities solely for the purpose of storage, display or delivery of goods or merchandise belonging to the Headquarter;
■ l the maintenance of a stock of goods or merchandise belonging to the Headquarter solely for the purpose of storage, display or delivery;
■ l the maintenance of a stock of goods or merchandise belonging to the Headquarter solely for the purpose of processing by another Headquarter;
■ l the maintenance of a fixed place of business solely for the purpose of purchasing goods or merchandise, or for collecting information, for the Headquarter;
■ l the maintenance of a fixed place of business solely for the purpose of advertising, for the supply of information, for scientific research.
(B) Liaison office
(1) PE. And Corporate Taxation.
Liaison Office is a first-step vehicle which is utilized, prior to the formal business launching into Korean Market by the foreign corporation.
Liaison office shall not be deemed as a “PE” as long as it engages in the following business activities and accordingly shall not be subject to the Korea corporate taxes.
Normally, Liaison activities shall engage in the similar activities which have a preparatory or auxiliary character for the headquarter such as
■ l the use of facilities solely for the purpose of storage, display or delivery of goods or merchandise belonging to the Headquarter;
■ l the maintenance of a stock of goods or merchandise belonging to the Headquarter solely for the purpose of storage, display or delivery;
■ l the maintenance of a stock of goods or merchandise belonging to the Headquarter solely for the purpose of processing by another Headquarter;
■ l the maintenance of a fixed place of business solely for the purpose of purchasing goods or merchandise, or for collecting information, for the Headquarter;
■ l the maintenance of a fixed place of business solely for the purpose of advertising, for the supply of information, for scientific research.
(2) Payroll taxes and social security charges.
Basically, the payroll income shall be taxed in the different ways with the other Koreans. It is so called “Class B salary" whichis paid directly in foreign currency from the foreign corporation.
The social security charges are also applied in the same ways with the other Korean company.
(3) Legal entity.
The legal entity of the Liaison Office shall be treated as a “foreign corporation”
(C) Branch office.
(1) PE. And Corporate Taxation.
Generally, a Branch office of the foreign corporation is a common vehicle which is usually utilized by the foreign corporation next to the Liaison Office (Rep. Office), who intends to newly set up the business entity in Korea and shall be deemed as a Permanent Establishment(PE) who is subject to the Korean taxation on the Korean source income, to the extent of being attributable to the Branch Office.
The form of business activities of the Branch office shall be normally those such as sales and marketing activities in order to get any order from the Korean accounts as well as any technical and engineering services for the Korean accounts etc.
(2) Payroll taxes and social security charges.
Basically, the payroll income shall be taxed same with the other Koreans, which is so called “Class A salary".
However, in the case of Rep. office, the payroll income shall be taxed in some different ways than the case of the Branch entity. It is treated as so called, "Class B salary", as is paid directly in foreign currency from the foreign corporation.
The social security charges are also applied in the same ways with the other Korean company.
(3) Legal entity.
The legal entity of the Branch Office shall be treated as a “the foreign corporation”
대 현 회 계 법 인
책임공인회계사 : 김 영수 ｜ Tel: 02-3288-6070 ｜ Fax: 02-3288-6090 ｜ Mobil: 010-8380-6889
COPYRIGHT ⓒ 2020 CFO SERVICE ALL RIGHT RESERVED