A domestic place of business can arise before you register anything, from activity alone. This is the six-month test, the four objections groups usually raise, and what 29 published Korean cases show about when an assessment is actually overturned.
Foreign groups usually discover their Korean tax position in the wrong order: they decide on a structure, register it, and then ask what follows. Korean law works the other way. A domestic place of business arises from what your people are doing and for how long — and once it exists, filing obligations run from that date, not from your registration. The useful first question is therefore not “what should we set up” but “do we already have one, and since when?”
For construction, installation and assembly work, Korean law treats a site as a domestic place of business where the site or related supervisory activity continues for more than six months. Most tax treaties apply the same six-month threshold and expressly include supervisory activity in it.
That parallel matters, because it removes the usual escape route. Groups often assume the treaty will give relief that domestic law does not. Where the treaty threshold is identical and supervision is named in it, there is nothing to argue about — both roads lead to the same place. On a project running two years, the only open questions are when the threshold was crossed and at which sites.
This is the objection raised most often, and it does not work.
In a published tribunal decision, a US company managed a Korean-owned hotel under a management contract and seconded a general manager to run it. It argued it had no premises of its own in Korea. The tribunal found a domestic place of business, on two grounds: the company used the hotel as a fixed place of business exclusively and over a long period, and although the general manager was formally employed by another entity, he performed the claimant's work under the reporting line and control of the claimant company.
The Korean courts frame the same question as three elements — a fixed place of business exists; the enterprise has the right to dispose of or use it; and an essential and significant business activity is carried on there. The second element is the answer to this objection: it asks about use, not ownership.
Secondment arrangements do not move the activity where the parent bears the cost and the reporting line runs to the parent. The formal employment contract is one fact among several, and in the decision above it was expressly held not to be decisive.
The exclusion is narrower than it reads. It covers a fixed place used solely for storage, display, delivery, purchasing, collecting information, or activities of a preparatory or auxiliary character. The Supreme Court of Korea has framed the test as whether the activity is an essential and significant business activity of the enterprise.
Supervising the construction of an asset you will operate, or commissioning equipment you supplied, is not incidental to the business. At that stage of the asset's life it is the business. This is where groups expect relief most often and receive it least.
Korean law contains an anti-fragmentation rule aimed precisely at this, and the treaty provisions take the same approach. Dividing activities among related entities does not change the outcome — and in practice the attempt tends to worsen the position, because it creates contemporaneous evidence that the group was managing the threshold rather than managing the work.
We reviewed the published Korean decisions on fixed place of business: 29 cases, of which 6 resulted in the assessment being overturned. That ratio is less useful than what the six had in common.
| The six that succeeded | Why |
|---|---|
| Decision-making stayed at head office | Korean activity amounted to collecting information — squarely inside the exclusion |
| Equipment installed at premises the foreign company could not use | No right of disposal or use — the second element failed |
| Dependent agent alleged but not evidenced | The authority could not prove the agency on the facts |
None of the six involved supervision and commissioning carried on at a site over a period of years. We say so because it is worth knowing whether there is a contrary line of authority to argue from. On that fact pattern, there is not.
A finding of a domestic place of business tends to be treated as a corporate tax question. It is not.
In the hotel management case, the tax authority used the finding to recharacterise the management fee as a supply of services and assess VAT, and the tribunal upheld it.
A second decision goes further, and matters to anyone supplying equipment into their own Korean project. The taxpayer there supplied in three ways — equipment procured abroad on FOB terms, equipment procured domestically and sold to the customer, and on-site technical and supervisory services. It argued it had a place of business for the services but not for the domestically procured equipment. The tribunal rejected the split: the construction site itself was a place of business for VAT purposes, and the technical services were a significant part of the plant construction rather than something ancillary to the equipment supply.
Only one of the taxpayer's arguments succeeded, and it was a customs argument — for the portion corresponding to foreign materials that had passed through a bonded facility, VAT was properly collected from the buyer by the customs office rather than by the supplier. The line that was drawn was the customs line, not the taxpayer's own characterisation.
If you supply equipment into your own Korean project, three questions have to be answered from documents rather than assumed:
Is the equipment imported and sold to the Korean counterparty, issued free of charge, or retained in your ownership and installed into your own asset? Where does customs clearance occur, who is the importer of record, and is the work carried out in a bonded construction site? Are commissioning and testing charged separately, or bundled?
The answers determine who must issue tax invoices, who bears the output VAT, whether input VAT is recoverable, and how much profit is attributable to the Korean place of business.
Establish the facts before the structure. From personnel movement and contract records, determine whether a domestic place of business already exists and from what date, site by site. That single answer decides whether you are planning a compliance calendar or also regularising a period that has already run — and it is the input to every other decision, including whether a branch or a subsidiary is the right form.
We do this work for foreign-invested companies in English end to end. If you are unsure of your position, the useful first exchange is a short written one about dates, headcount and sites.
Basis. This note reflects the Corporate Income Tax Act provisions on a domestic place of business, including the construction and supervision threshold, the preparatory-and-auxiliary exclusion and the anti-fragmentation rule, together with the corresponding permanent establishment articles of Korea's tax treaties; and published Korean decisions including a Supreme Court judgment on the “essential and significant business activity” test, a High Court judgment setting out the three elements, and tribunal decisions on management contracts and on plant equipment supply. It is general information as at September 2026, not advice on a specific situation — treaty thresholds and wording vary by country. Please take advice before acting.
Almost never, in this context. The exclusion covers a fixed place used solely for storage, display, delivery, purchasing, collecting information, or other activities of a preparatory or auxiliary character. The Korean Supreme Court has framed the test as whether the activity is an “essential and significant business activity” of the enterprise. Supervising the construction of the asset you will operate, or commissioning equipment you supplied, is not incidental to your business — at that stage of the asset's life it is your business. Groups expect relief here more often than they receive it.
No. This is the most common objection and it does not work in Korea. In a published tribunal case, a US company managed a Korean-owned hotel under a management contract and seconded a general manager, arguing it had no premises of its own. The tribunal found a domestic place of business: the company used the hotel as a fixed place of business exclusively and over a long period, and although the general manager was formally employed by another entity, he worked under the reporting line and control of the claimant company. Two rules follow: premises owned by someone else still count if used exclusively and continuously, and the formal employer of seconded staff is not decisive where the cost and the reporting line sit with the parent.
No. Korean law contains an anti-fragmentation rule addressed exactly at this, and dividing activities among related entities does not change the outcome. The same approach appears in the treaty provisions. In practice the attempt tends to make the position worse, because it produces contemporaneous evidence that the group was managing the threshold rather than managing the work.
When the activity physically begins at the site, not when you registered, opened a bank account or signed a lease. It is a question of fact, established from records — personnel movement, contracts, site attendance. In a closely comparable tribunal case the date was fixed at the day the company's first engineer entered Korea. This is why the first task in any regularisation is to establish the dates from your own records rather than from anyone's recollection: the answer determines what is already late, and how much of the statutory penalty reduction is still available.
No, and this is regularly underestimated. In the hotel management case the tax authority used the finding to recharacterise the management fee as a supply of services and assessed VAT, and the tribunal upheld it. In another case involving a plant project, the taxpayer supplied equipment in three ways and argued it had a place of business for the services but not for the domestically procured equipment; the tribunal rejected the split, holding that the construction site itself was a place of business for VAT purposes and that the technical services were a significant part of the project rather than something ancillary to the equipment. A finding of a domestic place of business does not stay inside corporate tax.
Tell us when your people first started work in Korea, at how many sites, and what they are doing there. Those three facts settle most of the analysis.