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Research by Country/Region January 19, 2018  
KOREA: CUSTOMS, TAXES and DOCUMENTATION REQUIREMENTS for IT PRODUCTS and SERVICES IMPORTS

A. Is this country a member of the Information Technology Agreement?

B. Customs documentation requirements for IT products

C. Software: duties and taxes, updates, licenses, electronically delivered

D. IT services: tax treatment and other regulations

E. Refurbished, used, or repaired computer equipment imports

A. IS THIS COUNTRY A MEMBER OF THE INFORMATION TECHNOLOGY AGREEMENT?
YES. However, Korea will not eliminate tariffs fully on certain products until 2004. See Korea's tariff schedule on WTO site here.
Signatories to the Information Technology Agreement (ITA) have eliminated their import duties on a wide range of information technology products, including software and computer hardware. For more information on the ITA, and exact tariff elimination schedules of signatories, click here.
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B. CUSTOMS DOCUMENTATION REQUIREMENTS FOR IT PRODUCTS

What are the documentation requirements for the physical import of software? For other information technology products?
The commercial invoice, commonly used in the importation of software into Korea, is the one single document, which describes the entire transaction from start to finish. The basis for all other export documents, the commerce invoice is, in reality, a bill for the goods from the seller to the buyer. It is also the primary shipping document used by customs worldwide for commodity control and valuation.

There is one document that the importer of software products is required to submit to Korean customs officials at the time of customs clearance of the product (in addition to an ordinary set of shipping documents). It is the detailed description of the product being imported, including product specifications and the purpose for which the import of software is intended.
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C. SOFTWARE: DUTIES and TAXES, UPDATES, LICENSES, ELECTRONICALLY DELIVERED

DUTIES AND TAXES ON SOFTWARE IMPORTS

Are duties assessed on the intellectual property of the software or on the medium on which is it presented?
At present, all computer software products (both customized and packaged) enter Korea at a “zero” percent duty rate.
    Are taxes assessed on the intellectual property of the software or on the medium on which is it presented?
    The only taxes imposed on computer software are the value added tax (the VAT for software products is 10% of the C.I.F. value of the shipment) and the corporate withholding tax. Taxes on the intellectual property of the software are assessed on the value of the media plus the program(s) contained on it, not on the value of the media itself (e.g., the value of the floppy disk or CD-ROM).

    Is customized software treated differently than packaged software?
    Customized software products are not treated differently than packaged software products in the sense that the same duty and tax rates are applied to both types of products.
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    IMPORTS OF SOFTWARE UPDATES

    What are the customs duties and tax implications for software sold with updates when the full sales price, including cost of updates, is shown on the original commercial invoice? Are duties and taxes paid on that amount? What happens when the updates are sent at a later date? Are duties/taxes applied again? If so, based on what value? How should information presented on the commercial invoice for the original and subsequent shipments to avoid paying duties/taxes more than once on a single sale?
    In general, the full sales price of the software product (without cost of updates) should be noted on the commercial invoice – software updates are covered under subsequent invoices and, being treated as new imports, are subject to the normal taxes assessed on new imports. As stated above, all computer software products (both customized and packaged), including updates and maintenance costs on the invoice, will enter Korea at a “zero” percent duty rate and be subject to 10% VAT. In many cases, software updates are covered under maintenance service agreements of one or two years, which include the cost of the supplier's after-sales service, not including purchase prices. For example, maintenance percentages are generally 8% to 15% of the software value, often consisting of 50% of upgrade fee and the remaining 50% of end-user support fee, paid in advance. Under these principal methods of importing software updates, there is no possibility of taxes being paid more than once on a single sale.
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    SOFTWARE LICENSES: CUSTOMS CLASSIFICATION, IMPORT DUTIES, TAXES, OTHER

    Are software licenses classified in Harmonized System 4907?
    In Korea, software licenses are classified in harmonized systems 8524.

    Are import duties/taxes applied? If so, on what cost/price base are they levied?
    Software licenses are covered under the provisions of Korea’s Foreign Capital Promotion Law, Foreign Exchange Control Law, and Engineering and Technology Promotion Law. All transactions involving the importation of software products under these provisions constitute royalties for computer software and are subject to withholding taxes.

    Are withholding or other additional taxes applied on software licenses? If yes, how?
    Under the provisions of Korea’s Income Tax Law, Corporate Tax Law, Local Tax Law, and the tax treaty between the U.S. and Korea, U.S. companies’ royalties are subject to withholding corporate and resident taxes in Korea and the rate, in most cases, shall be 15 percent of the gross amount of the company’s sales. An example of the withholding tax due on products for a transaction valued at $1,000.00 follows:

    Corporate tax (15 percent of gross amount) = $1.000.00 * 15 percent = $150.00
    Resident tax (10 percent of corporate tax) = $150.00 * 10 percent = $15.00
    Total = $150.00 + $15.00 = $165.00

    In this case, the importer pays $835 ($1,000 - $165) to the foreign supplier in payment for the software product he imports. The importer pays $165 to the Korean government authorities as withholding taxes on behalf of the foreign supplier.

    In addition, a single flat rate of 10 percent value-added tax is applicable on all imports of software (VAT for software products is 10 percent of C.I.F. value). However, payments for computer software imported into Korea under a shrink-wrap license agreement or as a part of hardware (bundled) under a normal transaction mode are free from withholding tax.

    If a U.S. license agreement is included in the packaging or is part of the installation/registration of shrink-wrapped software imported from the United States, would that agreement be binding on consumers in your market? If so, would U.S. or local laws pertain?
    Payments for computer software imported into Korea under a shrink-wrap license agreement or as a part of hardware (bundled) under a normal transaction mode (thus the value of the software cannot be identifiable from the value of the hardware, etc.) are free from withholding tax. Under a shrink wrap license, a fixed form of the software license agreement, prepared unilaterally by the foreign supplier, is printed on the packing of the software or built into the software. It is automatically put into force as the packaging is destroyed or as the end-user begins to use the software, if the supplier has no legal presence or partners in Korea. However, according to the Korean Fair Trade Commission, the exporter or the importer should at least generally translate the agreement into Korean to avoid potential disputes.
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    SOFTWARE DELIVERED OVER THE INTERNET/ELECTRONICALLY DELIVERED SOFTWARE

    Are taxes applied to software delivered to the end-user over the Internet? If so, on what value?
    As mentioned earlier, all computer software products enter Korean at a “zero” percent duty rate. Payments for software products imported over the internet, which constitute royalties, however, are subject to withholding taxes of 15%. Korea's 10% VAT is applicable to all imports, including software, based on the CIF value. The imposition of VAT on software imported via the Internet will be determined by the location of the server from which customers can download the software. If the server from which the software is downloaded is located within Korea, the software importer must report sales to the National Tax Service and pay 10% VAT.

    The Korean Government currently does not charge corporate taxes on electronic transactions, regardless of the legal status of a U.S. firm's Korean office. The imposition of corporate tax on tangible transactions is determined by the legal status of the Korean office of a U.S. company. If the Korean office has the authority to sign sales contracts and conduct other business transactions, including price negotiations under its own responsibility, the Korean office will be charged corporate tax on the sales of the U.S. products (16% up to 100 million won of net profit and 28% for the excess of 100 million won. The current exchange rate is approximately 1200 won / $1). However, if the Korean office’s function is just that of a normal liaison office, such as advertisement/promotion and market intelligence reporting, then the Korean office will not be charged corporate tax on sales.
      Would the situation be different if this software were instead delivered to a distributor who has a license to produce (replicate) and sell the software?
      The transfer of copyrights of software or payments made as a consideration for use of, or the right to use, the copyrights under the software license agreement entered into between the domestic importer (licensee) and the foreign exporter (licensor) shall constitute royalties on copyrights subject to withholding tax at the source, regardless of terms and conditions of the payment (e.g. lump-sum payment or running royalty payment). The taxes are applied on the cost of the intellectual property, not on the cost of the medium.

      What are the documentation requirements for the electronically delivered import of digitized products (i.e. software, movie downloads) over the Internet or other networks?
      NEW: As of July 2003 the Ministry of Finance and Economy (MOFE) has fully liberalized regulations pertain to electronic transactions. There is no documentation requirement for imports of electronically digitized products sold over the Internet or other networks in Korea. Korean customers can download foreign digitized products and pay with credit cards, but if the price exceeds credit card limits, Korean customers have to pay through a Korean bank transfer. Although Korean banks require relevant documents, including customs clearance, invoices, etc., to confirm the delivery of goods from overseas, the documents can be substituted with a printed version of electronic transaction records from websites. Therefore, Korean customers can pay invoices associated with intangible goods by transmitting funds directly via Korean bank transfers.
        However, in practice, most Korean firms have not yet adjusted their book keeping and accounting practices to handle electronic transactions. Many purchasing departments of Korean companies still request invoices and relevant customs documents, from which finance the departments of the companies acknowledge the physical arrival of goods in stock and transfer payments. In addition, the enterprise accounting/finance systems of Korean companies may not be flexible enough yet to support and reflect international online transactions. U.S. exporters should discuss with their Korean customers whether they are ready to accept electronic transactions for intangible goods without documents based on physical shipments.

        Must an electronically delivered software import be accompanied by a physical shipment of the same product?
        See answer above.
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        D. IT SERVICES: TAX TREATMENT AND OTHER REGULATIONS

        Are services (i.e. training, set-up, etc) relating to the sale of software taxed? If so, at what rate and based on what value?
        Services (i.e. training, set-up, etc) related to the sale of software are covered under a maintenance service contract. Under this contractual arrangement, the Korean importer may process the remittance of foreign exchange to the service provider by presenting to his bank a copy of the maintenance service contract. Following a review of the documents submitted by the importer, the bank will collect withholding taxes of 15%. Transportation, per diem (lodging and meals) and other incidental expenses associated with the service provider’s travel to Korea, however, are exempt from such taxes.

        Are U.S. IT solution providers permitted to send personnel into the country to set up hardware/software-related systems?
        Yes. U.S. Information technology solution providers are permitted to send personnel to Korea to setup hardware/software related systems, and the personnel may be paid for their services provided, however, that the services in question are covered by or provided for in an approved international contract.

        Are special visa, work permits, and/or professional certification by an accredited body required?
        Visitors must have a valid passport and a valid visa to enter the country. Any Korean diplomatic or consular post grants visas. Two kinds of visas are issued. A temporary visa is valid for a stay of 90 days and is generally issued to tourists, transient, or visitors for business, orientation, conference, or cultural activities (only an application for visa is to be filed out). A visa for a stay of more than 90 days requires supporting documentation depending on the applicant’s qualifications. Visas for a stay of up to 90 days may not be extended (with very few exceptions). A person desiring to remain in Korea over 90 days must obtain a resident’s permit from the Ministry of Justice within 90 days from the date of arrival in Korea. A tourist staying 30 days or less need not obtain a visa (except in the case of Japanese nationals), provided a confirmed air reservation is produced. In such cases, a shore pass is given on arrival, and an extension may be granted upon request. Work permits and/or professional certification by an accredited body can be supportive of the visa application, but are not legal requirements.
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        E. REFURBISHED, USED, OR REPAIRED COMPUTER EQUIPMENT IMPORTS

        1. REFURBISHED COMPUTER EQUIPMENT

        Is the import of refurbished computer hardware, parts, and accessories (including toner cartridges) permitted?
        The import of refurbished parts for copying machines, fax machines, laser printers, and toner cartridges is permitted. On December 28, 1998, the Korean Ministry of Commerce, Industry, and Energy (MOCIE) removed most of restrictions imposed on the importation of used equipment (MOCIE’s public announcement No. 1998-132). Most equipment enters Korea at a zero percent duty under the tariff schedules of WTO’s Information Technology Agreement (ITA). Those under HS code 8471.41, such as Desktop PCs, still enter at a 1.8 percent duty rate, which in a few years will become zero.

        If so, what are the documentation requirements?

        Is special labeling required?
        At present, there are no labeling and country of origin marking requirements in effect for imports of refurbished/used computer hardware into Korea. However, many commodities enter Korea labeled and marked to show the country of origin except where unnecessary according to international practices.

        What value should be shown on the invoice?
        See below.

        How are duties and taxes assessed?
        All duties and taxes are assessed on the basis of the C.I.F. value of the shipment.
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        2. USED COMPUTER EQUIPMENT

        Is the import of used computer hardware, parts, and accessories (including toner cartridges) permitted?
        Please refer to the answers to the questions above on refurbished computer equipment.

        If so, what are the documentation requirements?

        Is special labeling required?

        What value should be shown on the invoice?

        How are duties and taxes assessed?
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        3. REPAIRED COMPUTER EQUIPMENT

        Are duties and taxes assessed on the re-import of repaired computer equipment?
        Most computer equipment re-imported into Korea for the purpose of processing or repairing may be imported duty and tax free, except that VAT (10 %) shall be assessed on the total cost of repairs, including parts and labor plus round-trip freight charges. VAT is applicable to the part of the product being exported and re-imported, and it is applied to the total value of parts replaced, labor, and round-trip freight. This means that VAT for the round trip freight plus the repair cost shall be imposed on re-imported items after repairing, irrespective of prices for replacement parts. To ensure correct assessment for VAT, the importer should present the import documentation (documentation which covered the re-export) which satisfactorily describes the equipment in question (by original import license, model and serial numbers, etc.).
          How should the commercial invoice appear?
          The shipping documents required to clear shipments through customs include: clean bill of lading, marine insurance policy or certificate (for C.I.F. shipments); commercial invoice; and packing list (also see answer to question above on refurbished computer equipment imports for more details on the commercial invoice).
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          RESPONSE INFORMATION

          This response was prepared by the U.S. Department of Commerce/Commercial Service office in Seoul, Korea, February 2003.
          For further clarification please contact:
          Julie Snyder
          Commercial Specialist
          U.S. Embassy, Seoul
          julie.snyder@mail.doc.gov

          Special Notes: The above information is intended to serve only as unofficial guidance. In seeking to obtain Korean government rulings in specific cases, it will often be necessary to refer to special laws, separate regulations and announcements, and case-by-case decisions by the government. Beyond the general guidelines shown above, legal counsel should be retained at an early stage of consummation of a major procurement contract, and before entering into any legal commitments.
            Sources: Korea IT Industry Promotion Agency (KIPA), Korea Software Industry Association (KOSA), National Tax Service (NTS), Korea Customs Service (KCS), Fair Trade Commission (FTC), Microsoft Korea, IBM Korea.

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