Israel – South Korea Tax Treaty

Business Activity in South Korea

South Korea, ranked as the world’s 13^th economy, is expected to have a growth of 2.1% in 2025 due to large exports and an increased domestic demand. The Korean government is focused to several important sectors such as healthcare, industrial chemicals, IT components, semiconductor manufacturing and energy, among others.

South Korea’s strategy for strengthening its influence worldwide has been enabled through the open market economy and negotiating new Free Trade Agreements (FTAs) with various countries.

In the agriculture sector, especially rice sector, the government has opened its market by signing free trade agreements with 52 countries, including Chile, EFTA, ASEAN, India, the European Union, Peru, the United States, Turkey, Australia, Canada, China, New Zealand, Vietnam and Colombia.

Notably, South Korea’s Foreign Investment Promotion Act supports foreign direct investments by providing guarantees for profits and offering benefits such as tax incentives, cash support and easing land-related regulations. Korea’s FDI increased by 3.2% in 2022 to USD 30.45 billion, marking excellent results due to strong manufacturing base, institutional improvements, and greenfield investments. The country also protects foreigners’ intellectual rights and facilitates foreign exchange transactions.

Furthermore, the growth of the South Korean entertainment is reflected in the global success of the Korean wave, also known as the Hallyu Wave. Distinguishable productions include the Netflix sensation “Squid Game” (2021), the Oscar-winning film “Parasite” (2019), and notably the K-pop craze represented by K-Pop groups BTS and Black Pink, among others.

Bilateral Agreements Between South Korea and Israel

The following agreements were signed between Israel and South Korea:

1. Double Taxation Agreement
2. International Investment Agreement

Convention on the Prevention of Double Taxation

The agreement between the Governments of Israel and South Korea regarding the avoidance of double taxation was signed in 17 March 1997 and entered into force on December 31^st 1997.

To read the agreement in English click here.

Reciprocal Promotion and Protection of Investments

On February 6th 1999, the International Investment Agreement was signed by the Government of the State of Israel and the Government of the Republic of Korea, and it came into effect on June 18^th 2003. The agreement aims to intensify economic cooperation, protect investments and create favorable investments conditions in order to stimulate business initiatives and prosperity in both nations.

Applicability of the MLI

Both counties have signed the “Multilateral Convention to Implement Tax Treaty-Related Measures to Prevent Base Erosion and Profit Shifting” (MLI). Both Israel and South Korea signed the agreement on June 7, 2017; Israel ratified it on September 13, 2018, and on the other side South Korea proceeded with the ratification on May 13, 2020.

Residency for Tax Purposes in South Korea

Residence of an Individual

An individual is considered tax resident in South Korea if they have a permanent home or stay in South Korea for at least 183 days within a year, or while also having family and/ or property ties. Additionally, an individual can also be considered a resident of Korea even if they have a job overseas and reside in Korea, based on a ‘facts and circumstances‘ test.

To read about how an individual is considered a resident of Israel, click here.

Residency of a Company

A company is considered tax resident in South Korea if it has its head office or effective management in South Korea.

To learn about how a company is considered a resident of Israel, click here.

The Tax System in South Korea

South Korea’s Tax Authority is called National Tax Service (NTS).

Income taxation:6% to 45%

Taxation of companies and branches:9% to 24%

VAT: 10%

Capital gains tax: 9% to 40%

Withholding Tax

Inheritance Tax and Estate Tax in South Korea

In South Korea, individuals to whom a property is transferred, either by the cause of death or missing person, are subject to the inheritance tax. It is levied at the rates between 10% to 50%, which excludes the local income tax. However, if the tax base is less than 500,000 won, no inheritance tax will be charged.

If inheritance tax is levied in a foreign country, the equivalent tax is deducted; furthermore, tax credit for short-term re-inheritance is calculated by credit rate.

Relocation to South Korea

South Korea is a global leader in innovation, due to its highly talented workforce, and public attention on research and development. Its friendly business climate, global connections, and strong economic basis make South Korea a reliable partner to invest in for companies and individuals looking for growth and expansion.

South Korea’s stable economy and high credit rating AA- make it an attractive nation for relocation. The country is home to excellent internet connectivity, high quality infrastructure, and a connected ecosystem, making it attractive for business looking to expand their activity in South Korea.

The Jewish community in Korea is mainly temporary, with many Jews serving in the American military and others working as business professionals, or teachers. Religious activities like Shabbat or holidays are conducted by a US Army priest. The Jewish Community of the Republic of Korea is the World Jewish Congress affiliate in the country.

Real Estate Taxation in South Korea

Property taxes in South Korea range from 0.07% to 5%, while real estate holding taxes vary between 0.5% and 5%. Acquisition taxes depend on the real estate price and can range between 1% and 7%, while the stamp duties range from KRW 50 to KRW 350,000, depending on the type of document.

The registration tax is by general rule included in the Acquisition Tax; however, on certain cases a separate registration tax ranging from 0.2% to 5% may be charged.

Transfer of Funds from Israel to South Korea

According to section 170(a) of the Israeli income tax ordinance, any transfer of payment to a non-Israeli resident is subject to 25% of withholding tax. The tax authority can allow, under certain circumstances, to reduce or dismiss the withholding tax. Our firm handles withholding tax matters with the Israeli Tax Authority.

Due to the fact that both countries have a tax treaty with each other, one can submit a declaration form (2513/2 form – Statement regarding a payment to a foreign resident that is exempt from withholding tax), and under certain circumstances, there is a possibility to transfer the payment without the withholding tax and the approval of the Tax Authority.

In providing advice regarding the transfer of money abroad, in addition to the issue of withholding tax, our office handles the requirements of the foreign banks, such as an accountant’s approval regarding the payment of taxes and examines additional actions required in light of the uniform standard of CRS between the countries – automatic exchange of information between countries which is carried out first through the banks and then between the tax authorities of each two countries.

The banks raise many difficulties and charge high fees for converting shekels into other currencies, so it is important to consult before transferring the funds – Contact us.

For more information on money transfers abroad, click here.

Types of Business Entities in South Korea

Main types of legal entities operating in South Korea include:

Partnership Company is formed by at least two members. No member can transfer their shares, engage in business similar to the company’s, or join another similar company without the consent of the other members. If no managing member is appointed, every member represents the company. If the company’s assets aren’t enough to cover its debts, all members are jointly responsible for settling them. With unanimous consent, the partnership can be converted into a limited partnership company.

A Limited Partnership Company consists of members with limited and unlimited liability. Those with limited liability cannot contribute personal services or credit, while those with unlimited liability must manage the company unless stated otherwise in the articles of incorporation. Limited liability members can engage in similar business activities without consent and can become unlimited liability members or directors in other companies with the same business purpose. They can also transfer shares with the approval of all unlimited liability members, and the company can be transformed into a partnership company with unanimous consent.

Limited Liability Company can be formed by one or more individuals through a capital investment and registration. Contributions can be made in cash or assets, except for those like services or credit, which are hard to value. There is no minimum capital requirement. While an LLC must have a manager (either an individual or legal entity), it doesn’t need directors or an auditor. Members can transfer their interests to third parties if other members agree or if the Articles of Association allow it.

Stock Companies allow shareholders to hold limited liability, allowing easy stock transfers and listing. Most domestic corporations opt for this type. Minimum investment amount is KRW 100 million, capital transfer is free, and minimum directors and auditors are required.

Publicly Traded Companies are well-suited for large businesses, with no minimum investment required, at least one or more equity units, unrestricted capital transfer, the ability to issue bonds, and a mandate for a board of directors consisting of at least three directors and auditors (except in certain cases).

Incentives Laws in South Korea

In Korea, foreign-invested companies can benefit from various tax incentives, such as deductions or exemptions from purchase and property taxes for properties owned by foreign companies in South Korea.

For example, companies can benefit from a 100% tax exemption for the first five years after starting their firm, followed by a 50% reduction for the next two years, depending on the type of investment and location. Local regulations may provide further exemptions or reductions to a maximum of fifteen years. Eligible investments include engine sectors, high technology, materials and components industries, employment creation, R&D centers, and regional offices.

In addition, international workers and engineers are eligible for lower income taxes. Engineers from other countries working in particular areas can earn a 50% income tax discount for a decade, while those in the materials, components, and equipment sectors can benefit from a 70% reduction for three years, followed by a 50% reduction for the next two years. Foreign workers can choose a fixed income tax rate of 19% for a maximum of 20 years.

Foreign investment zones (FIZs) like Ochang, Sansu, Munmak, jangan High-Tech, Sacheon, and many others provide additional benefits such as low rent, rent cuts, and tax breaks.

Double Tax Treaties in South Korea