A Summary Of Korean Corporate And Individual Income Taxes 2018
A Summaryof KoreanCorporate andIndividualIncome Taxes2018
This booklet presents a brief overview ofKorean corporate and individual income taxes.The information contained in this booklet is currentas of July 2018. For subsequent developments, pleaseconsult one of our professionals listed on Page 87.This booklet is intended as a general guide.In specific circumstances, professional advice shouldbe sought.Samil PricewaterhouseCoopers100, Hangang-daero, Yongsan-gu,Seoul 04386, KOREAFor more information on Samil PricewaterhouseCoopers,please visit: www.samil.com 2018 Samil PricewaterhouseCoopers. All rights reserved.
A Summaryof KoreanCorporate andIndividualIncome Taxes2018
ContentsCorporate Income Tax Summary7Korea, Republic of : Overview8Significant Developments10Taxes on Corporate Income11 Additional Tax on Corporate IncomeAgriculture and Fishery SurtaxMinimum TaxLocal Income TaxCorporate Residence13 Permanent Establishment (PE)Other Taxes 14Value-Added Tax (VAT)Customs DutiesProperty TaxSecurities Transaction TaxAcquisition TaxStamp TaxRegistration TaxGift TaxInheritance TaxPayroll TaxesSocial Security ContributionsBranch Income17Income Determination18 Inventory ValuationStock ValuationCapital GainsDividend IncomeInterest IncomeRental IncomeRoyalty IncomeGains and Losses on Foreign Currency TranslationForeign IncomeDeductions Depreciation and Amortisation Deduction of Company Car Expenses22
GoodwillStart-Up ExpensesInterest ExpensesContingent LiabilitiesBad DebtCharitable ContributionsEmployee RemunerationPension ExpensePayment for DirectorsEntertainment ExpensesInsurance PremiumsFines and PenaltiesTaxesNet Operating Losses (NOLs)Payments to Foreign AffiliatesGroup Taxation Tax Credits and Incentives 31Transfer PricingThin CapitalisationControlled Foreign Corporations (CFCs)Deduction Limit on Hybrid Financial InstrumentsRelated-Party Transactions34Foreign Tax CreditSpecial Tax Deductions for SMEsInvestment IncentivesResearch and Development (R&D) Tax IncentivesEnergy·Environmental IncentivesInbound Investment IncentivesWithholding Taxes41Tax Administration47 Taxable PeriodTax ReturnsPayment of TaxFunctional CurrencyTax Audit ProcessStatute of LimitationsPeriod of Extinctive Prescription for Collection ofNational Taxes Topics of Focus for Tax AuthoritiesOther Issues Exchange ControlsAutomatic Exchange of Tax InformationChoice of Business EntityGuidance on Taxation of an Off-Shore Partnership50
Individual Income Tax Summary55Significant Developments56Taxes on Personal Income57 Personal Income Tax (PIT) Rates Local Income Tax Alternative Minimum Tax (AMT)Residence59 Territoriality and ResidencyOther Taxes60 Social Security Contributions Consumption Taxes Net Wealth·Worth Taxes Inheritance, Estate and Gift Taxes Property Tax Acquisition Tax Luxury and Consumption TaxesIncome Determination64 Employment Income Equity Compensation Business Income Dividend Income Interest Income Pension Income Other Income Capital Gains Severance Pay Exempt IncomeDeductions72 Employment Income Deduction Special Tax Credits·Deductions Other Deductions Personal Deductions Business Deductions LossesForeign Tax Relief and Tax Treaties Foreign Tax Relief Tax Treaties76
Other Tax Credits and Incentives78 Tax CreditsTax Administration79 Taxable Period Tax Returns Payment of Tax Tax Audit Process Statute of Limitations Topics of Focus for Tax AuthoritiesSample Personal Income Tax Calculation83 Calendar year 2018Other Issues 84Work Permits and Visas Foreign Exchange IssuesContacts87
CorporateIncome TaxSummary7
Korea, Republic of : OverviewKorea is bordered by China to the northwest and Russiato the northeast, separated from Japan to the east bythe Korea Strait and the East Sea (Sea of Japan), andseparated from Taiwan to the south by the East ChinaSea.An independent Korean state or collection of stateshas existed almost continuously for several millennia.Between its initial unification in the seventh century(from three predecessor Korean states) until the20th century, Korea existed as a single independentcountry. In 1905, following the Russo-Japanese War,Korea became a protectorate of imperial Japan, and,in 1910, it was annexed as a colony. Korea regained itsindependence following Japan's surrender to the UnitedStates in 1945. After World War II, a Republic of Korea(ROK) was set up in the southern half of the KoreanPeninsula. The Republic of Korea (South Korea orKorea) is divided into nine provinces, with Seoul as thecapital. The official language of South Korea is Korean,and the currency is the won (KRW).Since the 1960s, South Korea has achieved an incrediblerecord of growth and global integration to become ahigh-tech industrialised economy. In 2004, South Koreajoined the trillion dollar club of world economies andcurrently is among the world's 20 largest economies.Initially, a system of close government and businessties, including directed credit and import restrictions,8
made this success possible. The government promotedthe import of raw materials and technology at theexpense of consumer goods and encouraged savings andinvestment over consumption. Korea adopted numerouseconomic reforms following the global crisis, includinggreater openness to foreign investment and imports.Growth was recorded at 2.8%, 2.9%, and 3.1% for 2015,2016, and 2017, respectively. South Korea’s per capitaincome was 21.9 times the level of North Korea in 2016.Samil PwC has over 3,000 devoted professionals, withapproximately 600 dedicated tax professionals andthe largest tax practice in Korea. Our multidisciplinaryteam of tax professionals includes experts with tax,accounting, law, economics, and finance backgrounds.Many of our professionals have previously worked forvarious governmental bodies in the areas of nationaltax, customs, and local tax administration. Our seniorprofessionals also regularly assist the Ministry ofStrategy and Finance and the National Tax Service inestablishing tax policies and implementing the relevantregulations.Samil PwC has dedicated teams of professionalsspecialised in transfer pricing, global tax structuring,customs and international trade consulting, andinternational assignment, as well as human resourceservices. Industry-focused and product-specialisedteams with deep expert knowledge, experience, andknow-how are the true hallmarks of Samil PwC's TaxPractice.9
Significant DevelopmentsThe main focus of the 2018 Corporate Income TaxLaw (CITL) reform is to encourage job creationby reforming the existing tax credits for corporateinvestment to create jobs and additional incentives tostimulate youth employment. Another focus is placedon strengthening the collection of income tax on highincome earners by expanding tax revenue sourcesthrough raising the CIT rate for taxable income over300 billion Korean won (KRW). In addition, the reformproposals include significant changes that would affectcross-border transactions of multinational companies.In the government’s commitment to implementthe Organisation for Economic Co-operation andDevelopment’s (OECD’s) recommendations under thebase erosion and profit shifting (BEPS) project, theproposals contain new rules to restrict the deductionfor hybrid financial instruments and interest expensedeductions.10
Taxes on Corporate IncomeResident corporations are taxed on their worldwideincome, whereas non-resident corporations with apermanent establishment (PE) in Korea are taxed only tothe extent of their Korean-source income. Non-residentcorporations without a PE in Korea are generally taxedthrough a withholding tax (WHT) on each separate itemof Korean-source income (see the ‘Withholding Taxes’section).The following tax table summarises the CIT ratesapplicable for the fiscal year starting on or after 1January 2018:Tax base (KRW million)Over(column 1)0Tax rate*Less thanTax oncolumn 1(KRW)*200010Marginal taxrate 0* Before applying the local income tax.Additional Tax on Corporate IncomeThe tax reform has provided that the 10% additionaltax provision introduced in 2015 to facilitate the use ofcorporate retained earnings to fund facility investment,payroll increase, and dividend payment, which wassupposed to be terminated by the end of December 2017,has been extended for three additional years until theend of December 2020 and raised tax rates to 20%. Theadditional tax shall apply to companies whose net assetsexceed KRW 50 billion (excluding small and mediumsized enterprises [SMEs]) and companies belongingto business groups subject to restrictions on crossshareholdings under the Act on Monopoly Regulationand Fair Trade.11
Companies should elect one of the following methods incomputing the additional tax: ([adjusted taxable income for the year x 65%] - thetotal amount of facility investment, wage increases,and mutual cooperation payments) x 20%, or ([adjusted taxable income for the year x 15%] the total amount of wage increases and mutualcooperation payments) x 20%.Agriculture and Fishery SurtaxWhen a corporate taxpayer claims certain tax credits orexemptions under the Special Tax Treatment ControlLaw (STTCL), a 20% agriculture and fishery surtax islevied on the reduced CIT liability.Minimum TaxCorporate taxpayers are liable for the minimum tax,which is defined as the greater of 10% (if the tax base isKRW 10 billion or less, 12% on the tax base exceedingKRW 10 billion but not more than KRW 100 billion,17% on the tax base exceeding KRW 100 billion) of thetaxable income before certain tax deductions and creditspursuant to the STTCL or the actual CIT liability aftervarious deductions and credits.For SMEs, the minimum tax is the greater of 7% oftaxable income before certain tax deductions and creditsor actual CIT liability after the deductions and credits.For middle market companies that exceed the size ofSMEs (so-called ‘medium-scale companies’), an 8%minimum tax rate is applicable for the first three years,starting from the year when the size exceeds an SME forthe first time, and a 9% rate is applicable for the nexttwo years.Local Income TaxThe local income tax is a separate income tax that has itsown tax base, tax exemption and credits, and tax rates.The local income tax rates for corporations are 1% onthe first KRW 200 million, 2% for the tax base betweenKRW 200 million and KRW 20 billion, 2.2% for the taxbase between KRW 20 billion and KRW 300 billion, and2.5% for the excess.12
Corporate ResidenceA corporation having its head office or principal officein Korea is a resident corporation. A corporation with aplace of effective management in Korea is also treated asa resident corporation.Permanent Establishment (PE)A non-resident corporation is generally deemed to havea tax presence (i.e. PE) in Korea in the following cases,among others: It has any fixed place of business in Korea, where thebusiness of the entity is wholly or partly carried on. It is represented by a dependent agent in Korea, whohas the authority to conclude contracts on its behalfand who has repeatedly exercised that authority. Its employee(s) provides services in Korea for morethan six months within 12 consecutive months. Its employee(s) continuously or repeatedly renderssimilar services in Korea for two or more years, evenif each service visit is for less than six months within12 consecutive months.Exceptions to a PE in Korea for a non-residentcorporation include fixed places of business usedonly for purchasing or storage of goods, advertising,publicity, collecting or furnishing of information, orother activities that are preparatory or auxiliary innature.13
Other TaxesValue-Added Tax (VAT)VAT is levied at a rate of 10% on the supply of goodsand services, except zero-rated VAT on certain supply ofgoods and services (e.g. goods for exportation, certaineligible services rendered to non-residents earningforeign currency, international transportation serviceby ships and aircraft) and exemption on certain goodsand services (e.g. basic life necessities and services, suchas unprocessed foodstuffs and agricultural products;medical and health services; finance and insuranceservices; duty-exempt goods).Electronic VAT invoicing is a compulsory requirement.If a taxpayer fails to issue the electronic VAT invoiceor report electronically to tax authorities, the relevantpenalties shall be imposed.Customs DutiesCustoms duties are generally assessed on importedgoods. ‘Importation’ refers to the delivery of goods intoKorea (in case of goods passing through a bonded area,delivery of such goods into Korea from such a bondedarea) to be consumed or to be used in Korea.Property TaxAn annual property tax ranging from 0.07% to 5%is charged on the statutory value of land, buildings,houses, vessels, and aircraft. Five times the property taxrate is applied to factories that are newly constructed orexpanded in a designated metropolitan area for the firstfive years.Securities Transaction TaxSecurities transaction tax (at the rate of 0.5% forunlisted shares or interest) is imposed on the transfer ofshares or interest, but the government is authorised toadjust the tax rate in certain circumstances. The flexibletax rate prescribed by the Presidential Decree is 0.3%(including 0.15% of agriculture and fishery surtax) forshares traded on the Korea Stock Exchange and 0.3%14
for shares traded on the Korean Securities DealersAutomated Quotations (KOSDAQ) or the Korea NewExchange (KONEX).Acquisition TaxAcquisition tax is charged on the price of realestate, motor vehicles, construction equipment, golfmembership, boats, etc. The acquisition tax rate variesdepending on the type of assets subject to the tax,ranging from 2% to 7%. A weighted rate is charged onacquisitions in a designated metropolitan area or onacquisition of luxury items, such as villas, golf courses,and yachts.Stamp TaxStamp tax is levied on a person who prepares adocument certifying establishment, transfer, or changeof rights to property in Korea. The stamp tax rangesfrom KRW 50 to KRW 350,000, depending on the typeof taxable document. The electronic stamp system hasbeen implemented to make it mandatory to use stampsbought online rather than paper stamps bought in banksor post offices.Registration TaxRegistration tax ranging from 0.02% to 5% is chargedupon the act of registering the creation, alteration, orlapse of property rights or other titles and incorporationwith the concerned authorities. Registration tax uponthe registration of title or right and incorporation forcorporations located in a designated metropolitan areamay be subject to three times the normal rate of 0.4%.Gift TaxGift tax is imposed on a person who acquires anyproperty or value increase by gift. If CIT or individualincome tax is imposed on the gifted property, however,the gift tax shall not be imposed. Gift tax ranges from10% on not more than KRW 100 million in tax base tothe top marginal tax rate of 50%.15
Inheritance TaxInheritance tax is imposed upon a person or a companythat acquires property through inheritance or bequest.However, an inheritor that is a for-profit company shallbe exempt from the inheritance tax. Inheritance taxrates are the same as those for gift tax.Payroll TaxesEmployers are required to withhold income taxes atsource on a monthly basis, finalise their employees' taxliability, and file the final tax settlement receipt with thetax authorities no later than the tenth day of March ofthe following year.Social Security ContributionsThere are four types of social security contributionsin Korea, namely national pension, national healthinsurance, employment insurance, and worker’s accidentcompensation insurance. Employers and employees arealmost equally required to bear a total amount of 8.5%of salaries for the first three types of social security taxes(i.e. national pension, national health insurance, andemployment insurance), while the worker's accidentcompensation insurance is borne by employers only,which varies by industry, ranging from 0.85% (banking,insurance) to 28.25% (coal mining) of salaries.16
Branch IncomeIn general, a branch office of a foreign corporation istaxed in the same manner as resident companies.Remittance of retained earnings from a Korean branchto its head office is subject to reporting to a designatedforeign exchange bank in Korea under the ForeignExchange Transaction Act.If the tax treaty between Korea and the country in whicha foreign corporation is residing allows the imposition ofa branch profits tax, the tax is imposed on the adjustedtaxable income of the Korean branch.Where applicable, the branch profits tax is levied inaddition to the regular CIT, which is imposed at the rateof 20% (or at a reduced rate as provided in a treaty) ofthe adjusted taxable income of the Korean branch.17
Income DeterminationGross income consists of gains, profits, income fromtrade and commerce, dealings in property, rents,royalties, and income derived from any transactionscarried on for gain or profit.Inventory ValuationInventories generally are stated at either the lower ofcost or market (LCM) or cost method. Any one of LCMand six cost methods, including specific identification,first in first out (FIFO), last in first out (LIFO), weightedaverage, moving-average, and retail method, can beelected for tax purposes. The method elected should beapplied consistently each year unless an application forchange has been submitted before three months fromthe year-end. Different valuation methods may be usedfor different categories (i.e. manufactured goods andmerchandised goods, semi-finished goods and goods inprocess, raw materials, supplies in stock) and differentbusiness places.For inventory costing under Korean InternationalFinancial Reporting Standards (K-IFRS), LIFO is notan acceptable accounting method. Consequently, ina year when a taxpayer first adopts K-IFRS and dulyreports the change of inventory valuation method fromLIFO to one of the other costing methods (e.g. FIFO,weighted average), the taxpayer is allowed to excludethe inventory valuation gain arising from the changeand include it in its taxable income over the next fiveyear period using a straight-line method.Stock ValuationThe valuation of securities or bonds shall be madeusing the cost method. For the cost method, theweighted-average cost method or moving-average costmethod shall be applied for the purpose of valuation ofsecurities, and the specific-identification method maybe used for valuation of bonds.18
Capital GainsGenerally, capital gains are taxed at the same CIT rate asordinary taxable income. For the purposes of taxation,gross income does not include income derived fromgains from capital transactions, such as capital surplus,gains on reduction of paid-in capital, etc. However, gainsfrom treasury stock transactions are taxed, and lossesare deductible from taxable income.Note that capital gains from the disposal of non-businesspurpose land or houses may be subject to additionalcapital gains tax at the rate of 10% (40% in the case ofnon-registered land or houses) in addition to the normalCIT.Dividend IncomeAll distributions to shareholders are taxed as dividendincome, whether paid in cash or in stock.However, a qualified domestic holding company thatowns more than 80% (40% in case of listed subsidiary)share ownership in its domestic subsidiary will receive a100% deduction for dividends, while an 80% deductionis allowed for share ownership of 80% (40% in case oflisted subsidiary) or less. A domestic corporation otherthan a qualified holding company will also receive a100% deduction for share ownership of 100%, 50% formore than 50% (30% in case of listed subsidiary) shareownership, and 30% for share ownership of 50% (30%in case of listed subsidiary) or less.Interest IncomeExcept for certain cases, all interest income must beinclud
Korea became a protectorate of imperial Japan, and, in 1910, it was annexed as a colony. Korea regained its independence following Japan's surrender to the United States in 1945. After World War II, a Republic of Korea (ROK) was set up in the southern half of the Korean Peninsula. The Republic of Korea (South Korea or
to intermediate and advanced Korean lessons. Before you go, here is a bit of history of 한글 (Hangeul, the Korean alphabet): Korean is the official language of Korea, both North and South. There are around 78 million people who speak Korean around the world. [1] 한글 (the Korean alphabet) was invented by Sejong the Great in the 15th century.File Size: 903KB
Intermediate Korean: Read Less [-] KOREAN 10AX Intermediate Korean for Heritage Speakers 5 Units Terms offered: Fall 2019, Fall 2018, Fall 2017 This is an intermediate course for students whose Korean proficiency level is higher in speaking than in reading or writing due to Korean-herita
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KOREAN 204 Intermediate Korean Eunyoung Kim KOREAN 306S Advanced Korean Eunyoung Kim KOREAN 408S Issues in Korean Lang/Soc II Hae-Young Kim LINGUISTICS Course # Title Instructor Cross-listing **LINGUIST 2
23 KOREAN 101: ELEMENTARY KOREAN I 9/5/2012 10 20 30 40 50 60 70 80 90 100 Sino- Korean 십 이십 삼십 사십 오십 육십 칠십 팔십 구십 백 Native- Korean 열 스물 서른 마흔 쉰 예순 일흔 여든 아흔 (온) Number practice 따라 .
Before you go, here is a bit of history of 한글 (Hangeul, the Korean alphabet): Korean is the official language of Korea, both North and South. There are around 78 million people who speak Korean around the world. [1] 한글 (the Korean alphabet) was invented by Sejong the Great in the 15th century. Before that time, people
2 Korean Language Korean is an agglutinative language in which “words typically contain a linear sequence of MORPHS ” (Crystal, 2008). Words in Korean (eojeols), there-fore, can be formed by joining content and func-tional morphemes to indicate such meaning. These eojeols can be interpreted as the basic segmenta-tion unit and they are separated by a blank space in the Korean sentence. Let .
