South Korea has signed separate pacts with Vietnam and Cambodia to prevent double taxation on offshore income of their nationals or companies doing business in the counterpart country, a move that will ease the tax burden on Korean firms actively expanding presence in the Southeast Asian countries.

Korea signed a revised double taxation avoidance agreement with Vietnam on Nov. 27 at the bilateral talks between Korean Foreign Minister Kang Kyung-wha and her Vietnamese counterpart Vu Thi Mai, the Ministry of Economy and Finance said in a statement on Tuesday. It would replace a 1994 pact.

The Korean foreign minister at a separate bilateral talk with her Cambodian counterpart, Prak Sokhonn earlier last week signed a similar agreement to avoid double taxation. This brings Korea to have signed double taxation avoidance agreements with all 10 Association of Southeast Asian Nations (ASEAN) member countries, said the finance ministry.

The newly signed agreements will take effect after parliamentary approval at respective countries, according to the ministry.

The ministry said the pacts are expected to help ease the tax burden for Korean companies doing business in Vietnam and Cambodia. Korea is the largest investor in Vietnam with $59.5 billion invested since 1988. Its direct investment in Vietnam amounted to $3.2 billion in 2018, jumping from $91 million in 1994.

In Cambodia, more than 250 Korean companies are running operations, making Korea the Southeast Asian country’s second-largest investor.

Following the revision in the pact with Vietnam, construction and engineering income from Korean companies of just permanent local entities in Vietnam will be taxed. Also, the taxation cap on income from royalties for trademark or intellectual property rights to art, culture and science is now reduced from 15 percent to 10 percent.

According to the double tax avoidance pact between Korea and Cambodian, two countries put a cap on taxes for dividends, interest and rental incomes at a 10 percent rate, lowered from the current 14 percent.

By Cho Jeehyun

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