Starting January 1, 2026, foreign service providers working with Korean clients will face new tax compliance obligations.

Previously, foreign companies could claim tax treaty benefits on Korea-sourced service income without submitting a formal application. However, under the new rules, they must file:

• A tax exemption/relief application, and
  

• Documentation proving beneficial ownership of the income.
  

If these forms are not submitted, Korean clients will be required to withhold tax at domestic rates (typically 22%), even if a tax treaty applies.

In addition, Korean payers must also file payment statements for all service income paid to foreign providers—even where treaty relief is applied.

📌 Why This Matters for Foreign Companies

• Increased administrative requirements to prepare and submit exemption applications.
  

• Cash flow risks if treaty benefits are not applied on time.
  

• Greater scrutiny of beneficial ownership to claim treaty relief.
  

📝 Next Steps to Stay Compliant

1️⃣ Review contracts with Korean clients to clarify tax documentation responsibilities.
2️⃣ Implement internal workflows for filing tax exemption applications.
3️⃣ Educate finance and tax teams on the new requirements to avoid payment delays.

📅 Effective Date
The changes apply to service income paid on or after January 1, 2026. Businesses should start preparing well in advance.

For practical advice on doing business in Korea and staying compliant with these new rules, contact us today.