Taxation in Korea

Korea’s taxation system includes a wide range of imposts on businesses and individuals applied at both national
and local levels, including income taxes (corporate income tax, local income tax and individual income tax), turnover taxes (value added tax and excise tax, as well as taxes such as surtax, and acquisition tax. This section will provide an overview of the primary taxes that Australian businesses need to consider when establishing in Korea. Be aware, however, that taxation of foreign enterprises can be complex, and that not all potentially applicable taxes are covered in this guide. All businesses should seek professional tax advice from firms such as PwC when setting up in Korea.

Corporate income tax

Corporate income tax (CIT) in Korea is covered under the Corporate Income Tax Law (CITL), the FIPA, the Special Tax Treatment Control Law (STTCL) and the Law for the Coordination of International Tax Affairs (LCITA). Taxes are administered and collected by the National Tax Service (NTS). Although CITL distinguishes between foreign and domestic companies, most provisions apply to both. Foreign entities, however, are eligible for tax incentives thanks to FIPA and the STTCL. Foreign businesses may also be eligible for further tax savings if they establish a presence in foreign investment and free trade zones.

Corporate taxpayers fall into two classifications

  • Resident corporation: A domestic corporation with its head office, main office or place of effective management in Korea, taxed on its worldwide income
  • Non-resident corporation: Foreign corporation that earns income from domestic sources in Korea, taxed only on income derived from Korea.

Indirect taxes

  • Value added tax (VAT): 
VAT is levied at a rate of 10 per cent on the supply of goods and services. Some goods and services attract
a zero rating (eg. goods for export, certain services rendered to non-residents, international transportation services by ships and aircraft, and certain goods and services supplied for foreign exchange earnings) 
while some goods and services are exempt (basic life necessities and services such as unprocessed foodstuffs and agricultural products; medical and health services; finance and insurance services; and duty-exempt goods). Electronic VAT invoicing is compulsory. If a taxpayer fails to issue the electronic VAT invoice or report electronically to tax authorities, penalties apply.
  • Local income tax: Local income tax used to be collected as a surcharge of 10 per cent on CIT liability. But since January 2014, it has been collected as a tax in its own right. The basic local income tax rates for a corporation are one per cent on the first KRW 200 million, two per cent between KRW 200 million and KRW 20 billion, and 2.2 per cent for the excess. As a separate income tax in its own right, the local tax has its own set of exemptions, credits and rates. One of the consequences of this is that tax exemptions and credits for CIT purposes are no longer available for local income tax purposes.

Other taxes

  • Customs duties
  • Individual consumption tax
  • Property taxes
  • Acquisition taxes
  • Stamp tax
  • Registration taxes
  • Gift tax

Taxation of individuals

  • Individuals with a domicile in Korea for 183 days or more are considered residents for tax purposes.
  • A foreigner who has salary income in Korea can opt to be taxed at a flat rate of 18.7 per cent (including the local income surtax) or the progressive tax rates with various deductions. The flat rate election is granted for the first five years of his or her employment in Korea.
  • Dividend and interest income exceeding KRW 20 million received by a resident individual are subject to progressive tax rates. The withholding tax charged on dividend and interest payments from Korean sources amounting to less than KRW 20 million generally is considered final.
  • Korea does not levy a net wealth tax. 

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