The new DTT between the Republic of Korea and Serbia provides, among other things, for the following beneficial withholding tax rates that shall be applicable to income received by residents of the Contracting States after the DTT becomes effective:
Article 10 – Dividends:
i. 5% withholding tax rate will apply to the gross amount of the dividends if the beneficial owner (other than a partnership) holds directly at least 25% of the capital of the company paying the dividends;
ii. 10% withholding tax rate will apply to the gross amount of the dividends in all other cases.
Article 11 – Interest:
i. Interest arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State;
ii. Such interest may also be taxed in the Contracting State in which it arises and in accordance with the laws of that Contracting State; however if the beneficial owner of the interest is a resident of the other Contracting State, the tax charged in that way shall not exceed 10% of the gross amount of the interest;
iii. Notwithstanding the provisions of paragraph (ii) the interest referred to in paragraph (i) shall be taxable only in the Contracting State of which the recipient is a resident if the beneficial owner of the interest is a resident of that Contracting State, and:
a) is the state in which the interest arises or a political subdivision or a local authority of such state;
b) is the national or the central bank of the other Contracting State;
c) is a financial institution owned by the Government, its political unit or the local authorities.
Article 13 – Capital Gains:
Capital gains derived by a resident of South Korea form the alienation of shares (or comparable interest) in a company, which resides in Serbia, will be subject of withholding tax rate as follows:
- 0% withholding tax rate, if the immovable property assets of such a company residing in Serbia, whose shares are being aliened, are located in Serbia and not exceeding 50% of its total assets;
- 20% withholding tax rate, if the immovable property assets of such a company residing in Serbia, whose shares are being aliened, are located in Serbia and equalling or exceeding 50% of its total assets.
The Contracting States shall notify each other in writing, through diplomatic channels, of the completion of the procedures required by their domestic laws for the bringing into force of the DTT. The DTT shall enter into force on the date of the later of these notifications and its provisions shall have effect on or after 1 January of the calendar year (or of the fiscal year – for some taxes in Korea) following that in which the DTT has entered into force.
Impact on investors: The new DTT between the Republic of Korea and Serbia will create a more favourable tax environment for eligible investors from both countries.