South Korea: 2019 Tax Reform
The 2019 Tax Reform introduced by the Korean government became effective for fiscal years beginning on or after January 1, 2019. Notable updates have been introduced to implement permanent establishment (PE) rules that are in accordance with Action 7 and Article 5 of the Organisation for Economic Cooperation and Development (OECD) Model Tax Convention. PE-related changes include:
- A new rule has been introduced to prevent misuse of exceptions to PE rules. That is, even if an activity from a fixed place is of a preparatory or auxiliary character, the fixed place would still constitute a PE if: i) the activity is complementary to the business activity carried on by the PE of the foreign company or its related parties; or ii) the overall activity resulting from the fixed place constitutes a complementary function;
- South Korea’s agency PE definition has also been expanded so that a foreign company may be deemed to have an agency PE if a person continuously plays the principal role leading to the conclusion of contracts by a foreign company without material modification, even if the person has no legal authority to conclude the contract on the company’s behalf.
In addition, starting July 1, 2019, non-residents who provide cloud-computing electronic services will be required to register for VAT.