KGBs and MSBs – rates, eligibility, availability of relief etc. – South Korea (Securities deposited with KSD)
Withholding Tax
Standard rate of withholding tax: | 0% | Trading prerequisite: | Yes | Holding restriction/ requirement: | Yes |
Only tax-exempt beneficial owners are eligible to hold KGBs and MSBs in Clearstream1. The standard rate of withholding tax on income payments from KGBs and MSBs is therefore 0% in Clearstream and consequently no relief and reclaim procedures apply.
Trading prerequisites
To access the South Korean market, Clearstream clients and/or the final beneficial owner must be in possession of an Investment Registration Certificate (IRC) or a Legal Entity Identifier (LEI).
Exemption from withholding tax on income payments from South Korean securities is only available to eligible IRC or LEI holders.
Note: Effective 14 December 2023, the Financial Supervisory Services (FSS) in South Korea stopped issuing new IRCs. Foreign investors who already have an IRC must continue to use this number in the market and cannot substitute it with the LEI.
Holding requirements
In Clearstream, IRC or LEI holders cardholders are non-individuals for domestic South Korean securities.
South Korean nationals and residents of South Korea are not allowed on the link to the South Korean market.
Eligible beneficial owners
Beneficial owners eligible to hold KGBs and MSBs are non-residents and foreign corporations, including:
- Overseas Investment Vehicles (OIVs) (public and private, deemed as beneficial owners),
- central or local governments or public institutions,
- pension funds,
- financial institutions (investment companies, insurers, banks, other financial institutions),
- other corporate entities.
Note: In cases foreign corporations invest through an OIV (including both private and public funds), the OIV will be regarded as the beneficial owner.
Clients holding KGBs and MSBs as intermediary CFI (Custodian Foreign financial Institution) must ensure to fulfil all below criteria:
- Be a foreign corporation with, its headquarters or main office located in a country where a tax treaty has been signed with the Republic of Korea; and
- Be a foreign corporation, that has the capacity to perform custody business of securities issued abroad (outside the country they are located); and
- Have a role whereby they are collecting beneficial owner information according to MOEF interpretation of the “Guidelines on Scope of Eligibility as Qualified Foreign Intermediaries (QFI) and Operations of QFI System”.
If there are several CFIs in the investment chain, they all have to meet the CFI criteria listed above.
Clearstream does not assist in this regard. Please consult your tax advisor for further information.
Documentation requirements
The documentation to be submitted to qualify to hold KGBs and MSBs in Clearstream is as follows:
- One-Time Certification for KGBs and MSBs;
- Power of Attorney (POA) to Clearstream;
- Certificate Of Residence (COR). It should be issued by the competent authority of the client's country of residence and within 6 months of the tax exemption application.
Note: If a certificate of residence is not available, the following alternative documents can be provided:- For corporations: certificate of incorporation; or
government-issued document with corporation name and address;
or IRC. - For central or local governments or public institutions, pension
funds: government-issued document; or equivalent document that
can verify the actual investor; or IRC.
- For corporations: certificate of incorporation; or
In addition, for Overseas Investment Vehicles (public or private, deemed as beneficial owners):
Overseas public investment vehicles (deemed as beneficial owners)
In the case of public fund in country of establishment:
- Fund establishment certificate; or
- Fund registration certificate; or
- Document issued by supervisory authority; or
- IRC; or
- Other equivalent document.
In the case of other public funds:
- Fund establishment certificate; or
- Fund registration certificate; or
- IRC; and
- Document that can verify that the fund qualifies for overseas investment vehicle equivalent to overseas public investment vehicle.
Overseas private investment vehicles (deemed as beneficial owners)
- Fund establishment certificate; or
- Fund registration certificate; or
- Document issued by supervisory authority; or
- Other equivalent document, or
- IRC.
The tax forms are valid until revoked (unless there is a change in the Clearstream client's details). Originals are required.
Clients acting as an intermediary wishing to hold KGBs and MSBs on behalf of their final beneficial owner(s) or through another CFI or through multiple CFIs must ensure all intermediaries (CFIs) in the custody chain and/or final beneficial owner(s) are eligible and fulfil all above criteria before holding KGBs and MSBs for third parties. Clients are responsible for ensuring compliance with this requirement and may be required to disclose any additional information and documentation regarding other CFIs and/or final beneficial owner(s) in the custody chain, if required from time to time by Clearstream, the depository and/or the tax authorities.
Important notes:
- The name of the client must be exactly the same as per the existing IRC or registered LEI.
- The client who has an existing IRC number must continue to use this number and cannot substitute it with the LEI or any other identification method.
Deadlines
Clients must ensure that the required documentation is provided before they or any underlying beneficial owner makes a first investment.
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1. Clearstream refers collectively to Clearstream Banking S.A. and Clearstream Europe AG (for Clearstream Europe AG clients using Creation accounts).