Taiwan-Korea tax agreement takes effect from January 1, 2024

　The Ministry of Finance announced on December 28, 2023 that the Agreement for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income between Taiwan and the Republic of Korean entered into force on December 27, 2023 has become effective since January 1, 2024, which serves as the 35^th income tax agreement for Taiwan (hereinafter the “Taiwan-Korea Tax Agreement”).  According to the Taiwan-Korea Tax Agreement, the tax withholding rates on non-residents’ dividends, interest, royalties are all lowered to 10%, which is the same with that of the Taiwan-Japan tax treaty.  

　In spite of the competitive relation between Taiwan and South Korea, the two nations have also been sharing a close and complementary partnership in semiconductor integrated circuit and information technology communication.  The Taiwan-Korea Tax Agreement provides a resolution of double taxation and reduces the withholding tax rates on the incomes of certain sources, which will ultimately create a more favorable environment with tax equality and boost bilateral economic ties, noted by the Ministry of Finance. 

　Absent the Taiwan-Korea Tax Agreement, South Korea imposed a 22% tax rate on non-residents’ income from dividends, interest, and royalties, while Taiwan taxed non-residents’ income from dividends, interest, and royalties at 21%, 15% or 20%, and 20%, respectively.  Now with the Taiwan-Korea Tax Agreement, the withholding tax rates on the income of these sources all drop to 10%, a withholding rate similar to most tax treaties.  

　The Taiwan-Korea Tax Agreement sets out the provisions with respect to mutual agreement procedure.  According those provisions, where the residents of both nations encounter disputes arising from the application of this Tax Agreement, they may seek consultation with the competent authorities for resolution.  For example, they may request for corresponding adjustments for transfer pricing to avoid double taxation or apply for bilateral advance pricing agreement to reduce the risk of audits by either side’s competent authority.  (Released 2023.12.29)  
/CCS