ENG

Taxation System
국가별 조세 제도 – 한국2020-07-23T14:57:48+09:00

KOREA

Korea Taxation System

Korea’s taxation system has supported the fiscal policies for achieving the central or local governments’ economic development plans. The system largely consists of national tax and local tax as follows.

National Tax

National taxes are collected by the National Tax Service (tax office) and the Customs Service(customs office) in Korea to finance the central government.

National tax is largely divided into internal taxes and customs duty. There are direct taxes and indirect taxes, depending on how the tax payment is made. A direct tax refers to tax collected directly from the taxpayer, while an indirect tax refers to tax collected by an intermediary from the person who bears the ultimate economic burden of the tax. Direct taxes include income tax, corporate tax, inheritance tax, and gift tax. Indirect taxes include value added tax, special excise tax, liquor tax, and securities transaction tax.

Corporate Tax

Corporate tax refers to tax imposed on income earned by businesses.

Domestic businesses are obligated to pay corporate tax for all income generated domestically and in foreign countries, while foreign businesses are obligated to pay corporate tax for income from domestic sources only.
‘Corporate tax for income from the business year’ is levied for the income of businesses in each business year. In the event that land, buildings, housings or adjoining land in specific areas are transferred or land for non-business purposes is transferred, ‘corporate tax for land and other transfer income’ is additionally levied. Where a domestic business is dissolved, ‘corporate tax on liquidated income’ is imposed.

Tax BaseTax Rate
KRW 200 million or less10%
More than KRW 200 million but not exceeding KRW 20 billionKRW 20 million + amount in excess of KRW 200 million X 20%
Exceeding KRW 20 billionKRW 3,980 million + amount in excess of KRW 20 billion X 22%
Income Tax

The Income Tax Act categorizes taxable income into global income, retirement income, and transfer income. The taxation system is as follows.

Global Income

Global income is the sum of interest income, dividend income, business income (including real estate rental income), wage and salary income, pension income, and other income. The tax base for global income is calculated by deducting necessary expenses, income deductions, etc. from global income, and a tax rate of 6-40 percent is applied. Global income tax return filing is exempted for interest income, dividend income, other income separately taxed at the source, and wage and salary income exempt from income tax burden due to year-end tax settlement.

Tax BaseTax Rate
Not more than KRW 12 million6%
More than KRW 12 million and not more than KRW 46 millionKRW 720,000 + the amount exceeding KRW 12 million X 15%
More than KRW 46 million and not more than KRW 88 millionKRW 5,820,000 + the amount exceeding KRW 46 million X 24%
More than KRW 88 million and not more than KRW 150 millionKRW 15,900,000 + the amount exceeding KRW 88 million X 35%
More than KRW 150 million and not more than KRW 500 millionKRW 37,600,000 + the amount exceeding KRW 150 million X 38%
More than KRW 500 millionKRW 170,600,000 + the amount exceeding KRW 500 million X 40%
Retirement Income

Retirement income refers to the income listed below generated in the year concerned. For retirement income incurred from Jan. 1, 2017 to Dec. 31, 2017, the amount of tax on retirement income shall be calculated as follows: a) ×60% + b) ×40%. Since the applicable tax rate differs depending on the time of retirement, it is advised to check the accurate tax rate for the year concerned.
a) Tax on retirement income = (Tax base for retirement income x 1/ serviced years x 5) x basic tax rate x 1/5 x serviced years
b) Tax on retirement income = (Tax base for retirement income x basic tax rate) x serviced years/ 12

Transfer Income

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 the registration status of such assets. Land and buildings, real estate rights, other assets, and stocks (excluding listed stocks transferred on exchange by minority shareholders) are subject to transfer income tax. However, transfer income tax is not levied on income from the transfer of one house for one household (excluding high-priced housings), income from the disposal of assets due to bankruptcy, or an exchange, division, or annexation of farmland.

Value Added Tax

Value added tax (VAT) is a tax levied on added value (profit) acquired in the process of the transaction of products (goods) or the provision of services. Korea imposes VAT on value generated at each step of a transaction, and applies a VAT rate of 10 percent. The VAT imposed on businesses is calculated by subtracting the input tax from the output tax.

Value added tax should be reported and paid every six months, and the taxable period of six months is divided into three months for a preliminary report.

Taxable periodPeriod for reportPayment deadlineReporting entity
1st period Jan.1-Jun.30Preliminary reportJan.1-Mar.31Apr.1-25Businesses
Finalized reportJan.1-Jun.30Jul.1-25Businesses and sole proprietors
2nd period Jul.1-Dec.31Preliminary reportJul.1-Sep.30Oct.1-25Businesses
Finalized reportJul.1-Dec.31Jan.1-25 of the following yearBusinesses and sole proprietors
Taxable periodPeriod for reportPayment deadlineReporting entity
1st period Jan.1-Jun.30Preliminary reportJan.1-Mar.31Apr.1-25Businesses
Finalized reportJan.1-Jun.30Jul.1-25Businesses and sole proprietors
2nd period Jul.1-Dec.31Preliminary reportJul.1-Sep.30Oct.1-25Businesses
Finalized reportJul.1-Dec.31Jan.1-25 of the following yearBusinesses and sole proprietors
Customs Duty

Customs duty is imposed on imported goods. The tax base of customs duty is the value or amount of imported goods (Article 15 of the Customs Duty Act), and tax rates vary depending on the item (Article 49 of the Customs Duty Act).

Local Tax

Local tax is collected primarily to finance the expenses required to provide administrative service to local residents, but also has the functions of distribution of income, development of the local industry and economy, and contribution to balanced national development. Local tax can be categorized into taxation of property, taxation of income and taxation of consumption. Property taxation includes property tax, aggregate land tax, automobile tax, acquisition tax, and registration and license tax.
Income taxation includes local income tax, and consumption taxation includes registration and license tax, leisure tax, tobacco consumption tax, regional resource facilities tax, local consumption tax and local education tax.

Acquisition Tax

Acquisition tax is imposed on persons who obtained certain assets, and is expected to have those whose tax-bearing capacity is exposed in the process of the transfer of ownership of real estate or vehicles charged with tax burden.

Registration and License Tax

Registration and license tax refers to tax imposed on the registration of matters related to the acquisition, transfer, change or termination of property rights and other rights (registration of acquisition is excluded, as acquisition tax is imposed), and tax imposed on administrative licenses acquired for certain sales facilities and acts, including licenses, permits, registrations, designations, inspections and tests prescribed by law.

Resident Tax

Resident tax is divided into equipartition, pro rata property and employee-based resident tax. The equipartition resident tax is equally imposed on all individuals or corporations residing or located in the territory of a municipal government; whereas the pro rata property resident tax is imposed based on the gross floor area of a business establishment. The employee-based resident tax is imposed based on the employee payroll.

Local Income Tax

Local income tax is divided into personal local income tax that is imposed on general income, retirement income and transfer income, and corporate local income tax that is imposed on the business income of a corporation, or income from the transfer or liquidation of land, etc.

The head of a municipal government may adjust the local income tax rate to within 50 percent of the standard tax rate as provided under municipal ordinance. Local income tax is not imposed on petty income whose tax amount is less than KRW 2,000.

Property Tax

Property tax is a Si/Gun tax (or Gu tax) levied on the owners of land, buildings, vessels, and aircrafts. The taxable objects for land are divided into three categories: general aggregate taxation objects, separate aggregate taxation objects, and scheduler taxation objects.