New Double Taxation Treaty with South Korea and Other Changes in the Area of Double Taxation Agreements

On 20 December 2019, a new Double Taxation Treaty with South Korea became effective. The new agreement applies to income arising in the period commencing after 1 January 2020, or income paid on 1 January 2020 and later, if the income is subject to withholding tax. The new treaty changes the amount of taxation related to withholding tax on dividends and interest and provides also for other areas.

Selected parameters of the new treaty:

  • The treaty sets a 5% withholding tax on dividends and interest.
  • The treaty sets a 10 % tax on industrial licence fees and 0 % tax on cultural licence fees.
  • Extension of the period for the origination of a permanent establishment in the form of a construction site to 12 months, addition of the concept referred to as service permanent establishment (for services provided for a period longer than 9 months within a 12- month-period.
  • Gains from alienation of assets – addition of a clause referred to as “property clause” for transfers of securities or ownership interests, based on which the source state is allowed to tax gains from the sale of securities or ownership interests if more than 50 % of the  company’s assets comprise  real property located in the territory of the given state.

Other Double Taxation Treaties

We would also like to point out that a double taxation treaty with Turkmenistan became effective on 1 January 2019. There was also a change in the interest rate in the double taxation treaty with Chile, with the rate being reduced from the original 15 % to 10 % (based on the activation of “the most favoured nation clause”).

In 2019, a double taxation treaty was concluded with Bangladesh, Botswana and Kyrgyzstan, however, none of these treaties have been ratified yet.

On 27 November 2019, an act on the double taxation treaty with Taiwan was approved by the Chamber of Deputies, however, the legislative process has not been completed yet.

Changes in the List of Non-Cooperative Jurisdictions

On 10 October 2019, the European Council announced that it had removed the Marshall Islands and the United Arab Emirates from Appendix I of the list of non-cooperative jurisdictions for tax purposes (the “black list”). Simultaneously, the following countries were removed from Appendix II (the “grey list”): Albania, Costa Rica, Mauritius, Serbia and Switzerland. Nine non-cooperative jurisdictions remain on the black list: American Samoa, Belize, Fiji, Guam, Oman, Samoa, Trinidad and Tobago, American Virgin Islands and Vanuatu.

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