A liaison office of a foreign corporation that carries on no revenue-generating activity in Korea and performs only non-business functions such as liaison and market research must submit the status information prescribed by Presidential Decree to the district tax office by 10 February of the following year (Corporate Tax Act, Art. 94-2(1)). If its actual activities meet the domestic place of business test in Article 94, however, it is not a liaison office.
A liaison office is simply an office of the foreign corporation
A liaison office is sometimes thought of as a Korean company, but the tax starting point is different. Article 2(1) of the Corporate Tax Act defines a domestic corporation as one with its head office, principal office or place of effective management in Korea; Article 2(3) defines a foreign corporation as a body with its head office or principal office abroad, where its place of effective management is not in Korea, that meets the criteria set by Presidential Decree. A liaison office is an office the foreign head company keeps in Korea, so no separate domestic corporation comes into being and the taxpayer remains the foreign corporation. It is worth remembering, though, that “place of effective management” appears in the definitions. Even with a head office abroad, a business effectively managed from Korea may fall within the definition of a domestic corporation. Where a representative based in Korea in practice makes the key decisions for the whole group, the issue may go beyond the liaison office to the character of the corporation itself, so the organisational structure should be checked individually.
The filing duty — status information by 10 February, plus invoice summaries
Article 94-2(1) of the Corporate Tax Act provides that where a foreign corporation keeps an office in Korea that carries on no revenue-generating activity and performs only non-business functions prescribed by Presidential Decree, such as liaison and market research, it must submit the status information prescribed by Presidential Decree to the district tax office for the office’s location by 10 February of the following year. The liaison office referred to in Article 94-2 is limited to one that is not a domestic place of business under Article 94. Article 94-2(2) requires the office to submit a summary by supplier of the invoices it has received, and Article 94-2(3) applies the relevant Corporate Tax Act provisions to that submission. Invoices received when the office buys goods or services in Korea — office rent, equipment — are covered, so neglecting records because there is no revenue tends to surface at this stage. The items in the status information are set by Presidential Decree, so check the current form at the time of filing.
No filing or a false filing: a 30-day corrective order
Article 94-2(4) provides that where a foreign corporation fails to submit the information under paragraph (1), or submits false information, the district tax office may order the foreign corporation to take the necessary corrective action within a 30-day compliance period. Note that the order is addressed to the foreign corporation, not the liaison office: paperwork missed by local staff can become a head-office matter. In practice the duty is often overlooked in the first year after the office is set up, because it seems natural that an office with no revenue has nothing to file. Yet this article imposes its obligation precisely on offices without revenue. The status information also tells the tax office what the office actually does, so a mismatch between what is reported and what happens can itself prompt questions about whether there is a domestic place of business. Put it in the calendar for the start of each year and make the entries match the real work.
Where it becomes a domestic place of business — fixed place and contract authority
What decides the matter is actual activity, not the label. Article 94(1) of the Corporate Tax Act treats a foreign corporation as having a domestic place of business where it has a fixed place in Korea through which all or part of its business is carried on, and Article 94(2) includes a branch, office or sales office, a workshop, factory or warehouse, and a construction site lasting more than six months. Article 94(3) adds that even without a fixed place, a foreign corporation is treated as having a domestic place of business where it conducts business through a person who has authority to conclude contracts in its name and habitually exercises it, or who, without that authority, habitually plays the principal role leading to the conclusion of contracts. Article 94(4), on the other hand, excludes places used only for activities of a preparatory or auxiliary character, such as mere purchasing, storage not for sale, advertising, publicity, collecting and providing information, and market research. A liaison office escapes being a domestic place of business precisely by staying within paragraph (4).
Practical check — how far staff duties actually go
The line usually blurs through what staff actually do. If local employees find customers and negotiate price and terms, and the head office in effect signs off what they agreed, it may need to be considered whether that is habitually playing the principal role leading to the conclusion of contracts under Article 94(3). Local staff signing contracts in the head office’s name, receiving payment in Korea or delivering services directly to customers are likewise signals to examine. Once a domestic place of business is recognised, income attributable to it moves into the taxation of domestic-source income as classified in Article 93, and the category it falls into shapes the method of taxation. None of these facts automatically creates a domestic place of business; the answer depends on the frequency and weight of the activity and how decisions are made at head office. Review job descriptions, email approval chains and who signs contracts regularly, and before widening the office’s remit, check first whether it would become a domestic place of business.