Double taxation treaty with Korea in effect from January

A new double taxation treaty, which entered into force at the end of 2019, replaces the original document from 1992. Concerning tax withheld at the source, it applies already to income paid or credited at 1 January 2020, hence requiring a very rapid response of withholding tax payers. For other income taxes, the new treaty shall be applied to taxable periods commencing on 1 January 2020 and later. Below we summarise the most important changes.


Dividends are subject to tax at the source of up to 5% of the gross amount of dividends, involving payments to both corporations and individuals. The original treaty also included a 5% limit but it only applied to corporate dividend recipients owning at least 25% of the capital; in other cases, it was a 10% limit.


The restriction of the taxation of paid interest should certainly be regarded as a positive change. Under the new treaty, interest shall be liable to tax at the source of up to 5% instead of 10% applied previously.


The article regulating royalties remains practically without changes. The use of or the right to use copyrights relating to works of art, literature and science remains exempt from tax at the source. A maximum 10% tax continues to apply on patents, trademarks and industrial equipment.

Permanent establishment

The new treaty extends the definition of a services permanent establishment, which arises as a result of the provision of services in the territory of the other state over one or more periods exceeding in aggregate nine months in any twelve-month period. The time test decisive for a permanent establishment – a building site – shall be extended from nine to twelve months.

Proceeds from the alienation of property

A complete novelty is the right to tax at the source proceeds from the sale of securities of or interests in a company resident in the source state if more than 50% of the company’s assets consist of real property located in the source state.

Elimination of double taxation

From 2020, when taxing dividends received from a Czech resident, a Korean company may offset not only the withholding tax, but also the Czech tax on profits of the company paying dividends, as long as the Korean company owns at least 25% of the Czech resident’s capital or voting rights.

In line with the latest developments in international taxation, the treaty explicitly stipulates a rule according to which the treaty’s benefits will not apply if the obtaining of such benefits was one of the main objectives of a transaction or a cross-border arrangement. Hence, we again stress the importance of documentation substantiating the economic purpose of any cross-border arrangement.

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