Reply to: South Korea Personal Tax Liability

[ASB]

Hi ASB,

I have spoken to my accountant this morning and he also believes there may be a way to offset this against Corporation Tax.

I'm no sure how the process works but we are now looking into this.

Thanks,

Steve

If it turns out you cannot offset this against CT another alternative might be to check whether this tax can be offset against your personal income tax. If this is the case then check whether it can only be offset against earned income (ie whether or not it can be offset against unearned - dividend - income).

If it can be offset against income tax paid as a result of dividend income then one possibility would be to pay enough dividend (assuming the retained funds are available) to generate a higher rate taxation liability broadly equivalent to the Korean liability.

It doesn't matter if the actual cash funds are not available to pay the increased dividend, it can simply be journalised to the directors account. In this way you will have a credit balance on the DCA which you can draw on when funds allow with no further tax to pay. [Of course this will only actually really be effective if there were a point that the level of dividends you require is such that you would be in the higher rate band anyway]

In any event to get any offset it will be important to obtain a certificate of tax deducted (however they call it or produce it) from the Korean authorities.

[Proconsoftware]

I can't comment about SK but can offer some hope.

Portugal operates a 20% withholding tax on personal services provided in portugal. A certificate is issued by the authorities and this tax is described as personal income tax.

My accountants, after advice from hmrc mentioned the amounts onthe ct return and it was deducted from the uk ct.

I suspect it depends upon the terms of the tax treaty.

Probably worthwhile reading it and then talking to hmrc.

Hi ASB,

I have spoken to my accountant this morning and he also believes there may be a way to offset this against Corporation Tax.

I'm no sure how the process works but we are now looking into this.

Thanks,

Steve

[ASB]

I can't comment about SK but can offer some hope.

Portugal operates a 20% withholding tax on personal services provided in portugal. A certificate is issued by the authorities and this tax is described as personal income tax.

My accountants, after advice from hmrc mentioned the amounts onthe ct return and it was deducted from the uk ct.

I suspect it depends upon the terms of the tax treaty.

Probably worthwhile reading it and then talking to hmrc.

[Fred Bloggs]

Thanks Just1MoreThen, i'll look at the Deloitte's guide.

To follow up what Fred Bloggs said, yes the agency have paid South Korean income tax not corporation tax.
The correct way would have been for the agency to employ us individually.
However, I would have never considered doing the work direct for the agency, all my work is done through my limited company.

I'm just struggling to understand how the agency can dictate how my company operates its taxation. It just doesnt make sense.

I believe the agency has made a mistake. They should have hired you as an individual not as a Ltd Co, IMO.

[Proconsoftware]

I suspect the agency has paid S Korean income tax though, not corporate tax? The agency should not have engaged the UK Ltd Co in my opinion. They should have engaged the individual to do the work, IMHO.

Thanks Just1MoreThen, i'll look at the Deloitte's guide.

To follow up what Fred Bloggs said, yes the agency have paid South Korean income tax not corporation tax.
The correct way would have been for the agency to employ us individually.
However, I would have never considered doing the work direct for the agency, all my work is done through my limited company.

I'm just struggling to understand how the agency can dictate how my company operates its taxation. It just doesnt make sense.

[Proconsoftware]

Correct, I believe you are stuffed but I'd like to be wrong.

Ha ha i hope you're wrong too....
Thanks anyway.

[Fred Bloggs]

Steve,

Have a look at the guide Deloitte's have produced here

From what I can ascertain, your company has been taxed correctly but there is a tax treaty with UK so there may well be scope to offset. Its not my area though, I hasten to add.

I suspect the agency has paid S Korean income tax though, not corporate tax? The agency should not have engaged the UK Ltd Co in my opinion. They should have engaged the individual to do the work, IMHO.

[Alan @ BroomeAffinity]

Steve,

Have a look at the guide Deloitte's have produced here

From what I can ascertain, your company has been taxed correctly but there is a tax treaty with UK so there may well be scope to offset. Its not my area though, I hasten to add.

[Fred Bloggs]

Hi Fred Bloggs,

On the subject of offsetting personal taxation paid in Korea against CT paid in the UK, i cant see how there would be a mechanism for this either. One's personal tax and the other is company tax.

Thanks,

Steve

Correct, I believe you are stuffed but I'd like to be wrong.

[Proconsoftware]

You are right. As soon as you look to work outside of the UK, your UK Ltd Co is basically useless to you as far as I can see. I don't see any way how what is effectively defacto personal taxation paid in S Korea can be used to offset UK CT though.

Hi Fred Bloggs,

On the subject of offsetting personal taxation paid in Korea against CT paid in the UK, i cant see how there would be a mechanism for this either. One's personal tax and the other is company tax.

Thanks,

Steve

[Fred Bloggs]

Sorry, I hope you get answers, but I am not sure that anyone here can answer those questions for you. My take on point #2 is definately no.

[Proconsoftware]

You are right. As soon as you look to work outside of the UK, your UK Ltd Co is basically useless to you as far as I can see. I don't see any way how what is effectively defacto personal taxation paid in S Korea can be used to offset UK CT though.

Thanks for the replies Fred Bloggs and Just1morethen.

I understand your points and I agree that the best way to avoid this in the future is to ensure it is in writing that "all taxes paid".

However, my original questions still stand for this situation.

1/ There is nothing in my contract T's and C's so can they legally deduct personal tax from my limited company income? Surely this income belongs to the company and its upto the directors decide how to finance the tax liability of the business and its employees not the agency
2/ Does the agencies actions now have IR35 implications?
3/ Is the 20% rate actually correct?

Many Thanks again,

Steve

[Fred Bloggs]

I suspect FredBloggs is correct. I have no experience of South Korea but I have seen similar situations in Algeria and Angola. I think something similar happens in Norway as well.(?)

You may be able to offset the deduction from your UK CT or SA tax though so all is not necessarily lost.

You are right. As soon as you look to work outside of the UK, your UK Ltd Co is basically useless to you as far as I can see. I don't see any way how what is effectively defacto personal taxation paid in S Korea can be used to offset UK CT though.

[Alan @ BroomeAffinity]

I suspect FredBloggs is correct. I have no experience of South Korea but I have seen similar situations in Algeria and Angola. I think something similar happens in Norway as well.(?)

You may be able to offset the deduction from your UK CT or SA tax though so all is not necessarily lost.

[Fred Bloggs]

I'm very sorry to hear this situation but as far as I can remember, every time I have been asked about working in places like South Korea one of the first questions I have asked is "is the rate tax paid or gross"? Often for these jobs, the client co pays the tax directly before you get the money. Working like that you are obviously a temporary employee and your own UK Ltd Co has nothing at all to do with it. The Korean tax paid is then used to offset some of your UK tax liability (if there is any which there will very likely be unless you have stayed out of the UK for a full tax year and have jumped through several other hoops). That's how I have always understood the situation anyway. Myself, I think you have made a mistake running this job through your Ltd Co, but there you go.