South Korea: Business Environment
A resident company subject to tax in Korea and overseas is entitled to a foreign tax credit for foreign tax paid in respect of income earned overseas (limited to the amount of tax payable in Korea). The excess foreign tax credit can be carried forward for up to 10 years from the fiscal year starting 1 January 2021.
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. Goodwill can be amortised over a period of five years using the straight-line method.
Certain charitable contributions can be deductible at up to 50% of the total taxable income for the concerned fiscal year after the deduction of net operating loss (including donations to public interest entities like government bodies and social welfare organisations, or for academic research, technical development, etc.) or up to 10% of the total taxable income for the fiscal year after the 50% deduction of other donations and net operating loss. The amount in excess of such limits can be carried over for ten years.
Net operating losses can be carried forward 10 years up to 80% of a fiscal year's taxable income, or for 15 years when incurred in fiscal years starting on or after January 1, 2020. SMEs and certain qualifying companies under recovery process are allowed to deduct the net operating losses carried over from prior years without limitation. The carryback of losses is not permitted; however, SMEs can elect to carry back a net operating losses for one year if they have duly filed tax returns for the year when NOL was incurred and the preceding year.
A special deduction from 5% to 30% (depending on corporate location, size, business types, etc., capped at KRW 100 million) applies to SMEs operating in a qualified business (applicable to taxable income arising in the tax years that end before 31 December 2022). New startup SMEs located outside of metropolitan and overpopulated areas, engaging in specified businesses such as manufacturing, mining, restaurants, audio-video production, telecommunications, computer programming, advertising, and amusement facilities (excluding cryptocurrency trading), are eligible for a tax relief of 50% to 100% reduction in corporate income tax for the first five years. Furthermore, several tax credits are available for qualified investments.
Nominal stamp duty is levied on agreements relating to the creation, transfer and alteration of rights. Starting from January 1st, 2023, the transferor of shares will be obligated to pay a securities transaction tax, which will be 0.35% of the share transfer price. However, for listed share transfers, the rate will be 0.2% from January 1st to December 31st, 2023. If the shares being transferred are listed on the Korea New Exchange (KONEX), the rate will be 0.1%.
Companies acquiring real estate, motor vehicles, heavy equipment, and certain other items must pay acquisition tax, with rates generally ranging from 1% to 7% (including the local surtax). A 12% acquisition tax rate is applicable to the acquisition of a residential house by a corporation.
Stamp duties ranging from KRW 50 to KRW 350,000 apply to agreements relating to the creation, transfer, or alteration of rights.
When a person receives a gift that increases their property or its value, they are subject to a gift tax. However, if the gifted property is already subject to CIT or individual income tax, the gift tax will not be imposed. The tax rate for gift tax ranges from 10% on a tax base of not more than KRW 100 million to the highest marginal tax rate of 50% on the excess over KRW three billion in the tax base.
The four types of social security contributions in Korea are national pension (4.5% of salaries, capped at a monthly salary of KRW 5,530,000 until June 2023), national health insurance (3.925%), and employment insurance. In addition to a 0.90% contribution to employment insurance, employers are required to make a 0.25% to 0.85% contribution to employment stabilisation insurance and occupational competency development insurance. Furthermore, contributions to the Worker’s Accident Compensation Insurance rates vary from 0.7% to 18.6% of total wages and payroll, depending on the type of industry.
South Korea | OECD | United States | Germany | |
Number of Payments of Taxes per Year | 12.0 | 10.1 | 10.6 | 9.0 |
Time Taken For Administrative Formalities (Hours) | 174.0 | 163.6 | 175.0 | 218.0 |
Total Share of Taxes (% of Profit) | 33.2 | 41.6 | 36.6 | 48.8 |
Source: Doing Business, Latest available data.
Basic income tax | |
Up to KRW 14 million | 6% |
From KRW 14 to 50 million | 15% |
From KRW 50 to 88 million | 24% |
From KRW 88 to 150 million | 35% |
From KRW 150 to 300 million | 38% |
From KRW 300 million to 500 million | 40% |
From KRW 500 million to 1 billion | 42% |
Over KRW 1 billion | 45% |
Local income surtax | |
Up to KRW 14 million | 0.6% |
From KRW 14 to 50 million | 1.5% |
From KRW 50 to 88 million | 2.4% |
From KRW 88 to 150 million | 3.5% |
From KRW 150 to 300 million | 3.8% |
From KRW 300 to 500 million | 4% |
From KRW 500 million to 1 billion | 4.2% |
Over KRW 1 billion | 4.5% |
Alternative minimum tax (business income of a resident individual and Korean-source business income of a non-resident individual) |
The greater of: 45% of income tax liability (35% applied to income tax liabilities of up to KRW 30 million) before exemptions or actual tax after exemptions |
Tax credits are available for medical expenses (15% with a limit of KRW 7 million, exclusively when they exceed 3% of total employment income), insurance premiums (12%, capped at KRW 120,000), donations (15% for the donation amount up to KRW 10 million and 30% for the excess) and education expenses (up to 15% with no cap for the taxpayer, limited to KRW 9 million for each dependant attending university or college, and KRW 3 million for each dependant attending preschool to high school). A tax credit of KRW 150,000 per child aged 7 or older for up to two children and KRW 300,000 per child for the third and more is also available.
National pension contributions paid by a taxpayer based on National Pension Law, Veteran Pension Law, Civil Service Pension Law et similia, arefully deductible.
All business-related expenses are tax-deductible. Business losses are deductible against employment income, pension income, other income, interest income, and dividend income; whereas rental losses can only be deducted against rental income. Capital losses are deductible only against capital gains.
Foreign employees or executive officers who start to work in Korea before 31 December 2023 may elect to apply for the flat tax rate of 20.9% (including the local income tax surcharge of 1.9%) for five consecutive tax years, without deductions (non-taxation, tax deductions, tax reductions/exemptions, and tax credits are forfeited). In order to do so, they must file an application with the local tax authority.
Different withholding taxes may apply to non-residents of countries with which South Korea signed a tax treaty, with rates as low as 0%.
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Latest Update: September 2023