Tax & Auditing Requirements
Foreigners must register their company/investment with the local tax office. Information about Korean taxes can be found at National Tax Service website. Given language issues, the complexity of Korean tax laws, companies are recommended to hire a local accounting firm to file taxes.
Regulating bodies:
Financial Supervisory Service, National Tax Service
Corporate Taxes
A company’s tax year is its accounting period as specified in the articles of incorporation, which normally is a 12-month period. The tax year cannot exceed 12 months. Financial statements (income statement, balance sheet, statement of cash flows, statement of changes in equity and statement of appropriation of retained earnings) and a business report must be filed each accounting year.
Listed companies and unlisted financial institutions are required to adopt K-IFRS (Korea-International Financial Reporting Standards). Unlisted companies may choose either K-IFRS or Korean Generally Accepted Accounting Standards (K-GAAP) for financial accounting. Certain provisions of the tax laws (e.g. depreciation, foreign currency translations) have been amended to reflect the adoption of K-IFRS .
Corporate tax:
- 10% (up to KRW 200 million)
- 20% (from KRW 200 million to KRW 20 billion)
- 22% (over KRW 20 billion)
Local income tax:
- 10% of corporate income tax liability
a separate income tax that has its own tax base, tax exemption and credits, and tax rates
Foreign corporations with a permanent establishment in Korea pay standard corporate income tax on Korean-sourced income. Foreign corporations without a permanent establishment deriving Korean-sourced income from qualifying activities are taxed at rates ranging from 2% to 20%.
VAT: 10% (filed quarterly)
Every business engaged in supplying of goods or services, whether or not for profit is required to register for VAT purposes by applying for a business registration certificate.
Withholding taxes:
- Dividends: 20%
- Interest: 14 or 20%
- Royalties: 20%
- Branch remittance tax: no or 5-15%
Wage tax/Social security contributions:
- Varies
Other Corporate Taxes
A capital registration tax of 0.48% (or 1.44% for Seoul Metropolitan Area) is levied. A real estate tax of 0.07% to 5% is levied on different kinds of property. Real property tax varies from 0.24% rto 0.6% (including surtax). A company that owns real estate must pay a real estate tax in addition to property tax.
Other special taxes and stamp duties are levied on special occasions.
Capital Gains Taxation
For resident companies, capital gains are treated as ordinary business income and taxed at the normal corporate tax rate. For nonresident companies, Korean-source capital gains are taxed at either 11% of sales or 22% of gains (whichever is less).
Main Allowable Deductions and Tax Credits
A dividends received deduction (DRD) is applied to dividends transferred between resident companies. Various types of tax incentives are available for qualifying activities that fulfil the Tax Incentive Limitation Law, including: investments, R&D and high-tech foreign-invested companies, charitable donations, insurance premiums, etc.
Start-up expenses, such as incorporation expenses, founders’ salary, and registration fees and taxes, are deductible if the expenses are recorded per the articles of incorporation and are actually paid.
Individual Taxes
Resident individuals are taxed on their worldwide income. Non-resident individuals are taxed only on Korean-source income.
Basic income tax:
- Up to KRW 12 million: 6%
- From KRW 12 to 46 million: 15%
- From KRW 46 to 88 million: 24%
- From KRW 88 to 150 millioт: 35%
- From KRW 150 to 500 million: 38%
- Over KRW 500 million: 40%
Local income surtax:
- Up to KRW 12 million: 0.6%
- From KRW 12 to 46 million: 1.5%
- From KRW 46 to 88 million: 2.4%
- From KRW 88 to 150 million: 3.5%
- From KRW 150 to 500 million: 3.8%
- Over KRW 500 million: 4.0%
Allowable Deductions and Tax Credits:
Tax credits are available in the forms of earned income tax credit (KRW 1,500,000 for a single individual with no child), pension fund tax credits and other special tax credits for medical expenses, insurance premiums, donations and education expenses.
Special Expatriate Tax Regime Foreign employees or executive officers who began work in Korea may elect apply for the flat tax rate of 20.9% (including local income tax surcharge of 1.9%).
Capital Tax Rate Inheritance and gift taxes of 10% to 50% depending on the tax base (after deduction of exempt amounts such as spouse, old age and dependent allowance) are levied on residents for assets acquired worldwide and on non-residents for assets located in Korea only. Capital gains are taxed at the lesser of 10% of sales or 20% of gains.
Audit
A juristic person may, by its articles of incorporation or by a resolution of the general meeting, have auditors.
The duties of an auditor shall be as follows:
- To inspect the financial status of the juristic person;
- To inspect the manner in which its affairs are executed by the directors;
- To report to a general meeting or to the competent authorities, if any irregularities are discovered in the financial status or the execution of affairs; and
- To convene a general meeting, if it is necessary to do so for making the report mentioned in the preceding subparagraph.
Companies are required to utilise a statutory auditor for an annual audit of the organisation’s financial health. Some examples of entities that offer statutory auditing services include: Ernst and Young Global, Deloitte Touche Tohmasu, KPMG International, PricewaterhouseCoopers.
For more information, consult the Regulation on External Audit and Accounting on Financial Supervisory Service.