Statutory rate without a valid treaty claim: 30%.
What sets the U.S.-South Korea treaty apart
The U.S.-Korea treaty dates from 1976 and has never been amended, so its rates and thresholds look nothing like a modern treaty. Interest is 12%, dividends 15% or 10%, and royalties 15% or 10%. A Korean contractor or employee loses the exemption once U.S. earnings for the year pass $3,000, whatever the day count. Equipment rentals and a Korean company's service fees are business profits, exempt without a U.S. permanent establishment. There is no limitation-on-benefits article in the modern sense, only an investment and holding company rule.
Common payments at a glance
| Payment | What the U.S. payer does | Article |
|---|---|---|
| Dividend to a Korean company holding 10% or more of the voting stock (and meeting the passive-income test) | 10% | 12(2)(b) |
| Dividend to anyone else | 15% | 12(2)(a) |
| Interest | 12%. Exempt if owned by the Korean government, the Bank of Korea or a wholly owned untaxed instrumentality | 13(2), 13(3) |
| Literary, dramatic, musical or artistic copyright, film or broadcast royalty | 10% | 14(2) |
| Patent, trademark, know-how or design royalty | 15% | 14(1) |
| Rent for equipment (other than ships or aircraft) | Business profits: no withholding without a U.S. permanent establishment | 8(5) |
| Service fees paid to a Korean company | Business profits: no withholding without a U.S. permanent establishment | 8(5) |
| Korean individual contractor working in the U.S. | Exempt only if under 183 days, U.S. income of $3,000 or less for the year, and no fixed base | 18 |
| Korean employee working in the U.S. | Exempt only if under 183 days, employed by a Korean resident, not borne by a U.S. PE, and pay of $3,000 or less | 19(2) |
| U.S. Social Security benefits | Taxable in the U.S.: withheld on | 24 |
| Private pension or annuity | Exempt from U.S. tax: taxable only in Korea | 23 |
Assumes the payee is the beneficial owner, is resident under the treaty, meets its limitation-on-benefits article and gives a valid W-8BEN, W-8BEN-E or Form 8233. Article references are to the treaty as amended.
Rates on investment and other income
Treaty in effect generally from Jan. 1, 1980. Protocols in effect from: none listed. IRS country code KS.
| Income | 1042-S code | Treaty rate | Article |
|---|---|---|---|
| Interest paid by U.S. obligors, general | 01 | 12%z | 13(2) |
| Dividends paid by U.S. corporations, general | 06 | 15% | 12(2) |
| Dividends qualifying for the direct dividend rate | 07 | 10% | 12(2) |
| Royalties: industrial, commercial or scientific equipment | 10 | n/au | 14(1) |
| Royalties: know-how and other industrial royalties | 10 | 15% | 14(1) |
| Royalties: patents | 10 | 15% | 14(1) |
| Royalties: motion picture and television copyrights | 11 | 10% | 14(1) |
| Royalties: copyrights (including software, unless the treaty says otherwise) | 12 | 10% | 14(1) |
| Pensions and annuities | 15 | 0% (exempt)f | 23(1) |
| U.S. Social Security benefits (applies to 85% of the payment) | 15 | 30% | 24 |
"n/a" means the payment type is not covered by the royalty article: equipment leasing is business profits (no withholding without a permanent establishment) or other income. Superscript letters are the IRS's own conditions, listed at the end of this page.
Pay for personal services performed in the United States
Each row is an exemption the treaty gives, with the limits the IRS lists. All conditions in a row must be met; if any is not, the pay is withheld on at 30% (contractors) or under the wage rules (employees). Services performed entirely outside the United States are foreign-source and need no treaty claim.
| Code | Purpose | Maximum presence in U.S. | Required employer or payer | Maximum amount | Article |
|---|---|---|---|---|---|
| 16 | Scholarship or fellowship grant515 | 5 years | Any U.S. or foreign resident | No limit | 21(1) |
| 17 | Independent personal services7 | 182 days | Any contractor | $3,000 p.a. | 18 |
| 18 | Dependent personal services171857 | 182 days | Korean resident | $3,000 p.a. | 19 |
| 19 | Teaching4 | 2 years | U.S. educational institution | No limit | 20 |
| 20 | Remittances or allowances | 5 years | Any foreign resident | No limit | 21(1) |
| 20 | Compensation during training | 5 years | Any foreign or U.S. resident | $2,000 p.a. | 21(1) |
| 20 | Compensation while gaining experience2 | 1 year | Korean resident | $5,000 | 21(2) |
| 20 | Compensation under U.S. Government program | 1 year | U.S. Government or its contractor | $10,000 | 21(3) |
Reading the U.S.-South Korea treaty as a payer
Documents and dates
The convention was signed in Seoul on June 4, 1976 and entered into force on October 20, 1979; it applies to U.S. withholding on amounts paid from the second month after entry into force and generally from January 1, 1980. No protocol has amended it. Its article numbering is its own: business profits are Article 8, permanent establishment 9, dividends 12, interest 13, royalties 14, holding companies 17, independent services 18, employees 19, pensions 23 and Social Security 24.
Residence
A Korean corporation is one with its head or main office in Korea, or treated as Korean for Korean tax purposes; place of incorporation is not the test (Art. 2(1)(e)). Citizenship does not create residence. Partnerships and trusts are looked through: a partner or beneficiary is a resident only to the extent the income is taxed to them as a resident (Art. 3(1)). The treaty does not cover Puerto Rico or the U.S. possessions.
Investment and holding companies
Article 17 is the treaty's only anti-abuse rule. A Korean corporation loses the dividend, interest, royalty and gains articles if special measures in Korea tax that income substantially less than Korea's general corporate tax and 25% or more of its capital is owned, directly or indirectly, by persons who are not individual residents of Korea, or by U.S. citizens. The technical explanation tests ownership at the individual shareholder level.
Dividends
The general rate is 15%. A Korean company gets 10% only if it owned at least 10% of the payer's voting stock for the part of the payer's year before the payment and for the whole prior year, and no more than 25% of the payer's prior-year gross income was interest and dividends (excluding interest from banking, insurance or financing and income from 50%-owned subsidiaries) (Art. 12(2)(b)). The State Department's letter describing the 10% rate simply as a parent-subsidiary rate leaves out both conditions. The treaty says nothing specific about RICs or REITs.
Interest
Interest is capped at 12% (Art. 13(2)), not the 10% common in other treaties. Interest beneficially owned by the Korean government, a local authority, the Bank of Korea or an instrumentality wholly owned by them is exempt if the recipient is not taxed on its income (Art. 13(3)). Mortgage interest is interest, not real property income. Interest paid by a U.S. partnership is U.S.-source even if no partner is a U.S. resident (Art. 3(1)(c)). The Code's portfolio and deposit interest exemptions still apply (Art. 4(2)).
Royalties
Royalties for copyrights of literary, dramatic, musical or artistic works, and for films and radio or TV films or tapes, are capped at 10%; all other royalties, including patents, trademarks, designs, models, plans, secret processes and know-how, at 15% (Art. 14). The definition lists copyrights of scientific works but the 10% list does not, so their rate is unclear on the text. Rent for ships or aircraft paid to a lessor that does not operate them is a royalty; rent for other equipment is business profits. Royalties are U.S.-source only to the extent the property is used in the U.S.
Business profits and permanent establishment
Business profits ("industrial or commercial profits") are taxable only through a permanent establishment and expressly include furnishing services and renting tangible personal property (Art. 8(5)). A construction site is a permanent establishment after more than six months. Two rules are broader than in modern treaties: an agent who keeps a stock of the company's goods and regularly fills orders from it creates a permanent establishment (Art. 9(4)(b)), and so does selling, from a fixed place of business, goods processed or bought in the U.S. (Art. 9(5)).
Personal services
A Korean individual's independent services income is taxable in the U.S. if he or she is present 183 days or more in the tax year, or the income exceeds $3,000 for the year, or a fixed base is maintained for 183 days or more (Art. 18). An employee is exempt only if present less than 183 days, employed by a Korean resident or Korean permanent establishment, the pay is not borne by a U.S. permanent establishment, and the pay does not exceed $3,000 (Art. 19(2)). The IRS table states the day limit as 182. Officers are treated as employees. There are no separate articles for directors or for performers and athletes, so they fall under the same $3,000 tests.
Pensions and Social Security
Private pensions, annuities and alimony are taxable only in the country of residence (Art. 23), so a U.S. private pension paid to a Korean resident is not withheld on. Social Security and public pensions are taxable only by the paying country (Art. 24), so U.S. Social Security paid to a Korean resident is withheld on.
Teachers and students
Teachers and researchers invited to a university or recognized institution for an expected two years or less are exempt for up to two years, with no dollar limit; the first two years stay exempt if the stay runs longer (Art. 20). Students and grant recipients are exempt for up to five years on remittances from abroad, grants and up to $2,000 a year of service income; employees of a Korean resident gaining experience on up to $5,000 for one year; and participants in government-sponsored programs on up to $10,000 for one year (Art. 21). Only one provision can be used per year, and Articles 20 and 21(1) together are limited to five years.
Other income and gains
There is no other income article, so U.S.-source income the treaty does not cover is taxed under the Code. Gains on stock and securities are exempt unless the gain is on U.S. real property, connected with a permanent establishment, or realized by an individual present 183 days or more in the year (Art. 16).
Where payers get it wrong
- Giving 10% on a dividend because ownership is 10%. A full prior year of ownership and the payer's 25% passive-income test are also required.
- Withholding 10% on interest. The Korean rate is 12%; only government, central bank and wholly owned instrumentality interest is exempt.
- Using modern service thresholds. Contractors and employees are taxable once U.S. earnings for the year exceed $3,000, regardless of days.
- Treating equipment rent or a Korean company's service fees as royalties. Both are business profits.
- Applying 10% to patent or trademark royalties. Only artistic copyright and film royalties get 10%; the rest are 15%.
Read from the treaty documents: Convention of June 4, 1976 and exchange of notes; Treasury Technical Explanation. Texts and technical explanations: United States income tax treaties, A to Z.
How the payee claims these rates
- Individuals claim a reduced rate on interest, dividends, royalties or pensions in Part II of Form W-8BEN: treaty country, article, rate and any conditions. Most claims need a U.S. TIN or a foreign TIN on the form.
- Entities claim in Part III of Form W-8BEN-E, which also asks which limitation-on-benefits test the entity meets (the South Korea treaty's LOB provision is Article 17).
- Pay for services performed in the United States by an individual is exempted on Form 8233, not the W-8BEN, one form per tax year and per payer.
- The payer reports the payment on Form 1042-S with the income code shown above and chapter 3 exemption code 04 (exempt or reduced withholding under a tax treaty). From 2026 an exemption code is required whenever less than 30% is withheld.
The rate in a table is the most the United States may withhold under the treaty, not an entitlement. The payee has to be a resident of South Korea under the treaty, the beneficial owner of the income, and (for entities) meet the limitation-on-benefits article, and the payer has to hold a valid certificate before the payment. The IRS tables are a summary: check the article itself when the amount is material.
Questions payers ask
What is the U.S. withholding rate on dividends paid to a resident of South Korea?
15% on dividends generally and 10% on dividends qualifying for the direct dividend rate, under Article 12(2), if the shareholder documents the claim on a W-8BEN or W-8BEN-E. Without a valid claim the rate is 30%.
What is the U.S. withholding rate on royalties paid to a resident of South Korea?
10% on copyright and software royalties (income code 12), 15% on patent royalties and 10% on film and television royalties, under Article 14(1).
What is the U.S. withholding rate on interest paid to a resident of South Korea?
12% under Article 13(2), before considering the Code's own exemptions for portfolio interest and bank deposit interest.
Is a contractor from South Korea working in the United States exempt from U.S. withholding?
Under Article 18, pay for independent personal services is exempt if the contractor is present in the United States for no more than 182 days, up to $3,000 p.a., subject to the conditions in the article. An individual claims the exemption on Form 8233; without it, withhold 30%.
Do we withhold on a contractor from South Korea who works only outside the United States?
No. Pay for services performed entirely outside the United States is foreign-source income: no withholding and no Form 1042-S. Keep the contractor's W-8BEN or W-8BEN-E on file.
What is the withholding rate on interest paid to a Korean resident?
12% under Article 13, unless the interest is owned by the Korean government, the Bank of Korea or a wholly owned untaxed instrumentality, or qualifies for the Code's portfolio or deposit interest exemption.
Can a Korean contractor work in the U.S. without U.S. tax?
Only if present less than 183 days in the tax year, earning no more than $3,000 from U.S. services for the year, and without a fixed base kept for 183 days. Above $3,000 the income is taxable.
Is U.S. Social Security paid to a resident of Korea taxed in the U.S.?
Yes. Article 24 makes Social Security taxable only by the paying country.
The IRS notes behind the figures
Notes to the rates (IRS Table 1)
- f Includes alimony.
- u If enterprise earns income from leasing of equipment in the conduct of a trade or business, covered by Business Profits article (net tax). If passive income from the leasing of equipment, and not in Royalty article, covered by the Other Income article, if any. In Pakistan payment for TV broadcasting rights are covered by the Royalty article but not rental income from motion picture films.
- z An exemption from tax or a reduced rate of tax may apply to interest that is paid to the government of a Contracting State or a political subdivision or local authority thereof. An exemption or reduced rate may also apply to certain other types of interest, including interest paid to certain banks or other financial institutions, interest derived on loans guaranteed or insured by the government of a Contracting State, and interest arising in connection with commercial credit for goods or services. Please refer to the interest article of the relevant treaty for specific information. Income Tax Treaties
Notes to the services table (IRS Table 2)
- 2 Applies only if training or experience is received from a person other than alien's employer.
- 4 Does not apply to compensation for research work primarily for private benefit.
- 5 Grant must be from a nonprofit organization. In many cases, the exemption also applies to amounts from either the U.S. or foreign government. For Indonesia and the Netherlands, the exemption also applies if the amount is awarded under a technical assistance program entered into by the United States or the foreign government, or its political subdivisions or local authorities.
- 7 Exemption does not apply to the extent income is attributable to the recipient's fixed U.S. base. For residents of Korea and Norway, the fixed base must be maintained for more than 182 days (for Norway, 30 days in the case of the exploration or exploitation of the seabed and sub-soil and their natural resources); for residents of Morocco, the fixed base must be maintained for more than 89 days.
- 15 Does not apply to payments from the National Institutes of Health under its Visiting Associate Program and Visiting Scientist Program.
- 17 The exemption does not apply if the employee's compensation is borne by a permanent establishment (or in some cases a fixed base) that the employer has in the United States.
- 18 The exemption also applies if the employer is a permanent establishment in the treaty country but is not a resident of the treaty country.
- 57 Remuneration for employment exercised aboard a ship or aircraft operated in international traffic by a resident of a contracting State may be taxed in that State. Canada may tax the income from employment if the income is derived by a resident of Canada and the ship or aircraft is operated by a resident of Canada. If operated by a Luxembourg resident and Luxembourg fails to tax the income, such income shall be taxed in the State of which the employee is a resident. The income may be taxed in Tunisia only if the ship or aircraft is operated by an enterprise that is managed and controlled in Tunisia.
Transcribed from the IRS Tax Treaty Tables. Treaty texts and technical explanations: United States income tax treaties, A to Z.
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