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Kingdom pursuing tax treaty with South Korea

Kingdom pursuing tax treaty with South Korea

South Korea is pushing forward with discussions to hammer out a double taxation agreement (DTA) with the Kingdom that would provide an additional incentive for Korean businesses to set up shop and increase fiscal transparency while shielding individuals and corporations from being taxed twice.

Speaking at a memorandum of understanding signing yesterday between the Korea International Trade Association and the Cambodian Chamber of Commerce, Korean Ambassador Kim Weon-jin said he hoped the taxation agreement would be inked following a bilateral investment conference to be held later this year.

“We have been working on this all last year and we hope that we can sign a double taxation agreement by the end of this year that would provide for information sharing between the two countries,” he said. “With Korea’s current investment and trade with Cambodia, this agreement would maximise the potential for new investments.”

DTAs protect citizens and companies from double taxation. The bilateral agreements also establish an information exchange mechanism to halt fiscal evasion so that the respective governments can verify the tax filings of individuals and companies.

Cambodia has already signed DTAs with Singapore and China. The government has described these agreements as a positive step toward adopting international taxation norms and aligning with the ASEAN Economic Community, which supports a comprehensive DTA network.

Kim Yun-gun, deputy director-general of the Korea Trade-Investment Promotion Agency (KOTRA), said although a DTA framework has not yet been fully agreed upon between Cambodia and South Korea, the agreement is shaping up to look nearly identical to the Kingdom’s existing DTAs with Singapore and China.

While DTAs do not affect each country’s corporate tax rate, one perk of those agreements is that they lower the withholding tax on dividends, interest and royalties for firms operating in the Kingdom from the current rate of 14 percent for non-residents, to 10 percent.

Yun-gun said including this item in the forthcoming agreement with South Korea would increase the profitability of existing Korean-owned ventures and encourage more businesses to invest here.

“If Korean companies can send back taxable revenue at 10 percent rather than the current 14 percent, it would promote more investment,” he said.

Clint O’Connell, head of tax practice for foreign investment advisory and tax firm DFDL Cambodia, said it was important for Cambodia to look at DTA agreements beyond the ASEAN community and that an agreement with South Korea was a logical step.

“With Korea, which is a major contributor of FDI to Cambodia, a DTA would be a significant milestone,” he said. “The focus of DTAs is wider than just the elimination of double taxation. They reduce tax impediments to cross-border trade and investment and assist tax administration.”

He added that if the provisions under the DTA indeed mirrored those signed with Singapore and China – which increase certainty regarding tax rights, set up dispute mechanisms and reduce withholding tax rates – it should provide incentives for further investment.

“These elements all help to create an environment which tends to encourage and strengthen investor attitudes and help spur FDI,” he said.

According to South Korean Embassy statistics, bilateral trade between the two countries reached nearly $800 million last year, while South Korea has invested $4.5 billion into the Kingdom over the last decade.

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