Comprehensive Income Tax Imposed on Living Expenses Sent from Abroad... Court Rules "Domestic Taxation Must Be Canceled"

Court: "The place where the main business activity is conducted should be considered the country of residence"

A court ruling has declared it unfair to impose comprehensive income tax under Korean income tax law on money sent to family members in Korea while conducting business overseas.

The Seoul Administrative Court, Administrative Division 5 (Chief Judge Kim Sun-yeol), announced on the 16th that it ruled in favor of Mr. A, who operates a business in Vietnam, in a lawsuit against the Yangcheon Tax Office seeking cancellation of the comprehensive income tax imposition.

Mr. A established a company distributing paint and other products in Vietnam in 2013 and obtained a temporary residence permit in Vietnam from the end of 2016, residing there long-term. To support living expenses for his spouse and children remaining in Korea and to repay debts, he remitted approximately 254 million KRW in 2017 and approximately 289 million KRW in 2018 from company dividend income to domestic accounts.

Mr. A did not report comprehensive income tax on the dividend income received from the company, considering himself not a resident under the Korean Income Tax Act. He stayed in Korea for about 103 days in 2017 and about 84 days in 2018.

The tax authorities imposed comprehensive income tax of approximately 192 million KRW, asserting that Mr. A qualified as a resident under Korean income tax law. Mr. A filed a tax appeal, which was dismissed, leading him to initiate an administrative lawsuit.

The court determined that during the taxation period, Mr. A was a domestic resident under the former Income Tax Act while simultaneously residing in Vietnam for more than half the year, qualifying as a resident under Vietnamese personal income tax law.

According to the Income Tax Act, residents who have an address in Korea or stay for 183 days or more must pay income tax. Mr. A maintained his resident registration at a domestic apartment where his family lived and stayed in Korea for a total of 187 days during 2017?2018.

However, under the tax treaty agreement between Korea and Vietnam, the country with which the individual has a "closer personal and economic relationship" must be considered the country of residence. The court ruled that Mr. A’s country of residence should be regarded as Vietnam, and he is not obligated to pay income tax in Korea.

The court stated, "The center of significant interests refers to the country more closely related by comprehensively considering family relations, social relations, occupation, political and cultural activities, place of business, and location of property management." It judged that "Mr. A conducts his main business activities in Vietnam and holds and manages substantial business assets there, indicating a close economic interest."

It added, "The fact that the dividend income in question, which is only a part of Mr. A’s income in Vietnam, was spent on domestic living expenses and insurance premiums, and that Mr. A’s family resides in Korea, does not suffice to conclude that Mr. A has more significant interests in Korea than the economic interests he holds in Vietnam."

This content was produced with the assistance of AI translation services.