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India-Korea, Rep of

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Tax Treaty between India and South Korea has Entered into Force

The new income tax treaty between India and South Korea entered into force on 12 September 2016. The treaty, signed 18 may 2015, replaces the 1985 tax treaty between the two countries.

Taxes Covered

The treaty covers Indian income tax, including any surcharge thereon, and Korean income tax, corporation tax, and the special tax for rural development.

Service PE

The treaty includes the provision that a permanent establishment will be deemed constituted when an enterprise furnishes services in a Contracting State through employees or other engaged personnel for the same or connected project for a period or periods aggregating more than 183 days within any 12-month period.

Withholding Tax Rates

  • Dividends - 15%
  • Interest - 10%
  • Royalties - 10%
  • Fees for technical services (managerial, technical or consultancy) - 10%

Capital Gains

The following capital gains derived by a resident of one Contracting State may be taxed by the other State:

  • Gains from the alienation of immovable property situated in the other State;
  • Gains from alienation of movable property forming part of the business property of a permanent establishment in the other State;
  • Gains from the alienation of shares of the capital stock of a company the property of which consists directly or indirectly principally (more than 50%) of immovable property situated in the other State; and
  • Gains from the alienation of shares, other than the above, in a company resident in the other State if the alienator held directly or indirectly at least 5% of the capital of the company at any time during the 12-month period preceding the alienation

Gains from the alienation of other property by a resident of a Contracting State may only be taxed by that State.

Double Taxation Relief

Both countries apply the credit method for the elimination of double taxation.

Limitation on Benefits

Article 28 (Limitation on Benefits) includes the general provision that no person will be entitled to the benefits of the treaty if its affairs were arranged with the main purpose or one of the main purposes of avoiding taxes to which the treaty applies.

Article 28 also includes the provision that a resident of a Contracting State will not be entitled to the benefits of Articles 10 (Dividends), 11 (Interest), 12 (Royalties and Fees for Technical Services), 13 (Capital Gains) and 22 (Other Income), if:

  • The resident is directly or indirectly controlled by one or more persons that are not resident of that Contracting State; or
  • The main purpose or one of the main purposes of any person concerned with the creation or assignment of the shares, debt-claims, or other rights in respect of which the income is paid was to take advantage of those Articles by means of that creation or assignment.

Effective Date

The treaty applies in India from 1 April 2017 and in South Korea from 1 January 2017. The 1985 tax treaty between the two countries ceases to have effect on the dates the new treaty is effective.

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