Is There a Tax Treaty Between the US and South Korea? What the Rates Are

Yes, the treaty exists — since 1979

The United States–Republic of Korea Income Tax Convention was signed on June 4, 1976 and entered into force in 1979. It is the framework that decides which country may tax a given income and how much each country may withhold at source.

The treaty’s two main jobs:

1. Allocating taxing rights — deciding which country taxes what (business profits, dividends, interest, royalties, employment income, pensions).
2. Relieving double taxation — mainly through a foreign tax credit, so the same income is not fully taxed by both countries.

It matters most when money flows across the border: a US company paying dividends or royalties to a Korean parent, a Korean resident with US investments, or an American working in Korea. The treaty caps what the source country can withhold, and the rates below are the ceilings.

Withholding ceilings for US-source income

When a US company pays dividends, interest or royalties to a Korean resident or company, the US may withhold tax at source — but the treaty caps the rate. The figures below are the treaty ceilings and are what a beneficiary claims by certifying residency and beneficial ownership.

Dividends

• Portfolio dividends: 15% (general rate for a shareholder without a qualifying stake)
• Direct dividends: 10% — where the beneficial owner is a company owning at least 10% of the voting stock of the payer (and the payer is not essentially an investment company)

Interest

• 12% is the maximum withholding rate on interest
• Interest paid to the government of either country, its local authorities or instrumentalities is exempt from withholding at source

Royalties

• 15% general maximum rate
• 10% for literary and artistic royalties, including motion picture royalties

These are ceilings under the treaty; a country’s domestic law may in some cases provide a more favourable result, and claiming the treaty rate requires the right residency documentation (a W-8BEN for individuals or W-8BEN-E for companies). Without the treaty, the US statutory withholding on many of these payments is 30%.

Business profits and the permanent establishment rule

For business income, the treaty follows the standard pattern: profits of a company are taxed in the country where it is resident, unless the business is carried on through a permanent establishment (PE) in the other country.

• If there is no PE in the source country, the source country does not tax the business profits — only the residence country does.
• If a PE exists, profits attributable to that PE may be taxed in the source country.

The PE concept is what distinguishes ‘doing business with a country’ from ‘doing business in a country’. A US company merely selling to Korean customers generally does not create a PE; opening an office or branch in Korea may. The same logic applies in reverse for Korean companies operating in the US.

How double taxation is relieved

The treaty does not make income tax-free — it allocates taxing rights and then relieves the double burden. The main mechanism is the foreign tax credit:

• A US resident or company that pays Korean tax on Korean-source income generally credits that tax against its US tax on the same income.
• A Korean resident or company that pays US withholding on US-source income claims the foreign tax credit against Korean tax on that income.

The credit is how the two countries’ claims are reconciled, and it is the practical answer to the question ‘do I pay tax twice?’ — you generally do not pay twice, but you may pay the higher of the two countries’ effective rates, with the credit covering the lower one.

What this means for individuals

For a US citizen or resident living in Korea (and, in reverse, a Korean resident with US income), the treaty shapes the outcome in three practical ways:

• Employment income is generally taxed where the work is performed, subject to the treaty’s residence rules and the 183-day thresholds for temporary assignment.
• Pensions: private pension distributions are generally taxable only in the country of residence, with no withholding at source under the treaty.
• Social security benefits paid by one government are a separate matter and are typically treated under a totalization agreement rather than the income tax treaty — check the specific arrangement between the two countries.

Because residency status and the nature of the income both matter, the treaty is applied case by case. The Korean rules on who is a resident and how income is taxed are covered in our resident vs non-resident tax guide, and the foreign income rules in our foreign income tax guide.