Tax & Accounting
General Tax Information
Korea's taxation system has been developed to support the fiscal policies required for the economic development plans of the central or local governments. As of May 2014, taxation consists of national and local taxes as follows.
Categories of Korean Taxes
There are various taxes but we picked 3 taxes most significant taxes for business people. They are Income tax, Corporate tax and VAT.
According to the Income Tax Law, taxable income is divided into three categories: composite income, retirement income, and transfer income. Any income from sources other than those three is not taxed.
Composite income is the sum of seven separate types of income: interest income, dividend income, real estate rental income, business income, earned income, annuity income, and miscellaneous income. The composite income tax base shall be calculated by deducting necessary expenses, making income deductions, etc. from the composite income. A composite income tax rate ranges from 6-38% of income. Declaration of composite income tax is exempted for interest income, dividend income and miscellaneous income that can be separately taxed at the source, and for earned income whose duty of tax payment is terminated due to year-end settlement on earned income.
Retirement income refers to income generated in the year concerned and calculated like the following,
Calculated tax amount of retirement income = (retirement income tax standard x 1/continuous service year x 5) x basic tax rate x 1/5 x continuous service year
Transfer income refers to income gained by individuals through the transfer of certain assets during the corresponding year. Under the tax law of Korea, transfer refers to the practical transfer of assets for money due to sale, exchange, and in-kind investment in corporations, etc. regardless of registration or enrollment concerning such assets. Land and buildings, real estate rights, other assets, and general stock are subject to transfer tax. However, transfer tax is not levied on income from the transfer of one house for one household (except for high-grade houses), a disposition by adjudication of bankruptcy and an exchange, division, or annexation of farmland.
|Tax Base||Tax Base|
|Less than 12 million won||6%|
|More than 12 million won and less than 46 million won||720,000won + the amount exceeding 12 million won X 15%|
|More than 46 million won and less than 88 million won||5.82 million won + the amount exceeding 46 million won X 24%|
|More than 88 million won and less than 150 million won||15.9 million won + the amount exceeding 88 million won X 35%|
|More than 150 million won||37.6 million won + the amount exceeding 150 million won X 38%|
|Real estate Right to real estate||Unregistered asset||Unregistered asset||70 Percent|
|Registered asset||Registered assets held less than one year||40~50 percent (*1)|
|Registered assets held more than one year and less than two years||Basic tax rate and 40 percent (*2)|
|Registered assets held for more than two years||Basic tax rate (*3)|
|Non-business purpose land||Basic tax rate (*4)|
|Other assets||Stocks that meet certain requirements (real estate holding corporations etc.)||Basic tax rate (*4)|
|Assets other than those described above (Transfer of business rights along with fixed assets of business, specific facility use rights etc.)||Basic tax rate (*3)|
|General stocks (*5)||Stock of Non-SME Corporations||Majority shareholder's stock held for less than one year||30 percent|
|stocks other than described above||20 percent|
|Stock of SME corporations||10 percent|
Comparison of Foreign investment and Domestic branch of foreign corporation
There are three types of taxable income falling under the corporation tax category: income of each business year, liquidation income, and capital gains from the transfer of property. Income of each business year is calculated by deducting the total amount of deductible expenses from the total amount of gross income. Liquidation income refers to the residual property value of a dissolved (merged or divided) corporation exceeding the total amount of equity capital. In cases where transferring property, specific houses, or non-business land in areas where land values have skyrocketed, taxes are imposed on margin from transfer for the purpose of suppressing speculation. Corporate tax on capital gains from the transfer of land, etc. and corporate tax on income of each business year overlap as double taxation.
Corporate Taxation System
|Tax Base||Tax Base|
|Less than 200 million won||10/100 of the tax base|
|More than 200 million won and less than 20 billion won||20 million won + (20/100 of the amount exceeding 200 million won)|
|More than 20 billion won||3.98 billion won+ (22/100 of the amount exceeding 20 billion won)|
Value Added Tax
The value added tax (VAT) is a tax levied on added value in each step of production and distribution. In principle, VAT is a general consumption tax levied on the consumption of all goods and services, and at the same time, a form of indirect tax for which the transfer of tax burden can be anticipated. VAT is imposed on added value generated at each stage of transaction. Value added tax is imposed based on different taxation systems for general taxpayers and simplified taxpayers as follows.
VAT Report-Payment Deadline
|port||Period for Report||Report and Payment Deadlines|
• The 1st period: Jan. 1-Mar. 31
• The 2nd period: Jul. 1-Sep. 30
• Within 25 days after the termination of each preliminary report period in each taxable period
• Individual entrepreneurs shall make a preliminary report of the amount equivalent to 1/2 of the payable tax amount of the immediately preceding taxable period
|Final Tax Report||
• The 1st period: Apr. 1-Jun. 30
• The 2nd period: Oct. 1-Dec. 31
* Preliminary payment is excluded
• Within 25 days after the termination of each taxable period
• Portions already reported in preliminary report and early refund report on zero-tax rate, etc. are excluded
Accounting and Tax services
By the Korea Fair Trade Act and Related regulations, tax accounting services does not have standard price table. However, most of tax accountants are providing services at approx. $100/month for individual businesses and approx. $150/mon for corporations.
Bizinone connects tax accountants with much of service experiences at the reasonable prices pre-negotiated.
Contact us if you have any more questions or Help
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