Conditions for Drawing Benefits from the Double Taxation Treaty with the Republic of Korea

On 20 December 2019, an amended version of the treaty on the avoidance of double taxation and the prevention of income tax evasion between the Czech Republic and the Republic of Korea (the “Treaty”) entered into force. Pursuant to Article 27 of the Treaty, the provisions regarding withholding tax are to be used for the income paid out or credited as of 1 January 2020. In terms of other income, the provisions of the Treaty are to be used for the taxation periods starting on or after 1 January 2020.

Pursuant to Articles 10, 11 and 12, the right to tax income from dividends, royalty fees or interest also belongs to the source state. Taxation of this income in the source state may be limited by a maximum rate of 5% or, in the case of interest income, fully exempted, provided the payee is the beneficial owner of the income and, a resident of the other contracting state.

The way to establish the right to draw these Treaty benefits should be the subject of other arrangements between the contracting states. According to the Announcement of the Ministry of Finance of the Czech Republic issued in Finanční zpravodaj [Financial Newsletter] no. 7/2020 of 15 April 2020 (the “Announcement”), Czech taxpayers that are also the beneficial owners of the income are required to submit a request for a tax reduction, together with supplementary documents (e.g. a Czech tax residency certificate) to the Korean taxable person. It is then up to the Korean taxable person to assess whether the conditions for the use of the preferential regime are met or not. If they are not, the taxable person may ask the taxpayer to provide further requisite information or refuse the application of the preferential regime.

The Korean taxable person is required to submit the taxpayer’s request to the relevant tax office, at the latest on the ninth day of the month following the month of the realisation of the payment of the relevant income. The Announcement also states that the taxpayer’s request for drawing the benefits from the Treaty must be submitted in the respective Korean form.

By the issuance of this Announcement, directive no. 251/62 754/1995 amending the original text of the Treaty from 1992 ceases to apply.

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