The new income tax treaty between South Korea and Turkey was signed on 22 October 2021. Once in force and effective, the new treaty will replace the 1983 income tax treaty between the two countries.

Taxes Covered

The treaty covers Korean income tax, corporation tax, the special tax for rural development, and local income tax. It covers Turkish income tax and corporate tax.

Residence

If a person other than an individual is considered resident in both Contracting States, the competent authorities will determine its residence for the purpose of the treaty through mutual agreement. If no agreement is reached, such person will not be entitled to claim any relief or exemption from tax provided by the treaty.

Withholding Tax Rates

• Dividends - 10% if the beneficial owner is a company directly holding at least 25% of the paying company's capital; otherwise, 15%
• Interest - 10%
• Royalties - 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 the alienation of movable property forming part of the business property of a permanent establishment in the other State; and
• Gains from the alienation of shares deriving more than 50% of their value directly or indirectly from immovable property situated in the other State.

Gains from the alienation of other property by a resident of a Contracting State may generally only be taxed by that State. However, it is further provided that such other gains derived from the other State may be taxed in that State if the time period between the acquisition and alienation of the property does not exceed one year.

Double Taxation Relief

Both countries apply the credit method for the elimination of double taxation. In respect of dividends received by a Korean resident company that owns at least 25% of the voting shares or capital stock of the Turkish paying company, South Korea will also provide a credit for the Turkish tax payable on the profits out of which the dividends are paid.

Entitlement to Benefits

Article 28 (Entitlement to Benefits) provides that a benefit under the treaty shall not be granted in respect of an item of income if it is reasonable to conclude, having regard to all relevant facts and circumstances, that obtaining that benefit was one of the principal purposes of any arrangement or transaction that resulted directly or indirectly in that benefit, unless it is established that granting that benefit in these circumstances would be in accordance with the object and purpose of the relevant provisions of the treaty.

Entry into Force and Effect

The treaty will enter into force 30 days after the ratification instruments are exchanged and will apply from 1 January of the year following its entry into force.