Hong Kong-Korea income tax treaty enters into …

1 On 27 September 2016, the income tax treaty between Hong Kong and korea (the treaty ), signed on 8 July 2014, entered into The treaty will be effective for Korean tax for taxable years beginning on or after 1 January 20172 and for Hong Kong tax for any year of assessment beginning on or after 1 April highlightsPermanent establishment (PE) Article 5 A building site or construction, assembly or installation project or supervisory activities in connection will constitute a PE, if such site, project or activities last more than 12 months. This follows the Organisation for Economic Co-operation and Development Model treaty . The treaty has not adopted a service PE definition and exemption; accordingly, unless activities fall under the general auxiliary and preparatory in nature, services performed by a resident of one Contracting Party may become taxable in the other Contracting September 2016 Global Tax AlertHong Kong-Korea income tax treaty enters into forceEY Global Tax Alert LibraryAccess both online and pdf versions of all EY Global Tax into your web Tax Alert Exemption or reduction of tax on dividends, interest and royalties - Articles 10, 11 and 12 Subject to specific anti-avoidance provisions, the following table summarizes the applicable withholding rates for the passive income received from korea by a Hong Kong resident as the beneficial owner.

2 Tax rate/Passive incomeDividendsInterestRoyaltiesStatutor y withholding tax rate3 22%22%422%Reduced rate under the Treaty10/15% 50/10%6 10%On the other hand, there is no withholding tax on dividend and interest received from Hong Kong by a Korean resident. However, there is a domestic withholding tax on Hong Kong source royalties on certain intellectual properties received from Hong Kong by a Korean gains - Article 13 This article grants korea a taxing right on capital gains arising in korea ; however, gains derived from the alienation of ships or aircraft operated in international traffic or movable property associated with the operation of such ships or aircraft will be taxable in the jurisdiction of the resident. The capital gains arising in Hong Kong may however be exempt from Hong Kong tax if the nature of gain is investment in nature or sourced outside Hong income - Article 20 Except for annuities arising in one Contracting Party and paid to a resident of the other Contracting Party, this article provides exclusive resident jurisdiction agreement procedure - Article 23A resident of either jurisdiction may present its case within three years from the first notification of the action resulting in a double provisions - Article 26 The treaty contains anti-abuse provisions, under which, if the main purpose of an arrangement is to take advantage of the tax benefits available under the provisions of the Dividends, Interest, Royalties, Capital Gains and/or Other income articles of the treaty , such tax benefits will be See EY International Tax Alert.

3 Hong Kong signs income tax treaty with korea , dated 24 July For Korean withholding tax, the treaty will be effective for any amounts payable on or after 1 April The rates include a 10% local income A (inclusive of the 10% local income tax) applies, if interest accrues from bonds issued by Korean companies or government A 10% rate applies if the beneficial owner of the dividends is a company (other than a partnership) holding directly at least 25% of the capital of the company paying the dividends. For other cases, the 15% rate A 0% rate applies if the beneficial owner of the interest is the Hong Kong Government, the Hong Kong Monetary Authority or any institution wholly or mainly owned by the Hong Kong Government as may be agreed from time to time between the competent authorities of the Contracting A domestic withholding rate applies if the royalties are paid to associate and a person carrying on a trade, profession or business in Hong Kong has at any time wholly or partly owned the intellectual Tax Alert3 For additional information with respect to this Alert, please contact the following.

4 ernst & young Tax Services Limited, Hong Kong Tracy Ho +852 2846 9065 Florence Chan, Financial Services +852 2849 9228 & young LLP, Hong Kong Tax Desk, New York Charlotte Wong +1 212 773 7590 & young LLP, korea Tax Desk, New York Shuck Il Cho +1 212 360 9602 & young LLP, Asia Pacific Business Group, New York Chris Finnerty +1 212 773 7479 Kaz Parsch +1 212 773 7201 Bee-Khun Yap +1 212 773 1816 & young LLP, Asia Pacific Business Group, Houston Trang Martin +1 713 751 5775 & young Han young , Seoul Min Yong Kwon +82 2 3770 0934 Jin Hyun Seok +82 2 3770 0932 & young LLP, International Tax, New York Hae- young Kim +1 212 773 9026 | Assurance | Tax | Transactions | AdvisoryAbout EYEY is a global leader in assurance, tax, transaction and advisory services.

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