South Korea: Tax system

Tax Rate For Foreign Companies

Resident corporations are taxed on their worldwide income. Non-resident corporations with a permanent establishment in Korea are taxed only on their Korean-source income. Non-resident corporations without a permanent establishment in Korea are generally taxed through a withholding tax on each separate item of Korean-source income.

The transfer of accumulated profits or retained earnings from a Korean branch to its foreign head office requires reporting to a designated foreign exchange bank in Korea under the Foreign Exchange Transaction Act. If the tax treaty between Korea and the country where the foreign head office is located permits the imposition of a branch profits tax, this tax is imposed on the adjusted taxable income of the Korean branch. Additionally, when applicable, the branch profits tax is enforced alongside the regular corporate income tax, which is set at a rate of 20% or a reduced rate as stipulated in any applicable tax treaty.

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.

Capital Gains Taxation

For resident companies, capital gains are treated as ordinary business income and taxed at the normal corporate tax rate. However, capital gains from the sale of non-business purpose real estate are subject to additional capital gains tax, at the rate of 10% (40% in the case of non-registered land or houses).
For non-resident companies, Korean-source capital gains are taxed at either 11% of sales or 22% of the gains realized (whichever is less). In general, no special taxes are levied on gains from mergers.

Main Allowable Deductions and Tax Credits

As a general rule, expenses incurred in the ordinary course of business are deductible, with those above KRW 30,000 needing to be supported by qualifying evidence.

A doubtful accounts reserve is permitted as a tax deduction, calculated as the greater of 1% of the tax book value of receivables at year-end or the actual bad debt ratio (does not apply to financial institutions). Entertainment expenses of more than KRW 30,000 on an event basis supported by corporate credit card vouchers, cash receipts, or tax invoices can be deductible (up to certain limits). With some exceptions, interest paid in the ordinary course of business is deductible as long as the related loan is used for business purposes. Insurance premiums paid to an insurance company are deductible if the business enterprise is the listed beneficiary. Premiums where the beneficiary is the employee are deductible as well, but they are considered part of the employees' salaries and are subject to withholding tax on earned income.

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 (NOLs) can be carried forward for 10 years, up to 80% of a fiscal year's taxable income, or for 15 years if incurred in fiscal years starting on or after January 1, 2020. Small and medium-sized enterprises (SMEs) and certain qualifying companies undergoing a recovery process can deduct NOLs from prior years without limitation. Carryback of losses is generally not allowed, but SMEs can opt to carry back NOLs for one year if they have filed tax returns for the year when the loss occurred and the preceding year.

New start-up SMEs located in areas other than metropolitan and overpopulated regions are eligible for a 50% to 100% reduction in Corporate Income Tax (CIT) for the initial five years. This reduction is contingent upon their engagement in specified businesses, such as manufacturing, mining, restaurants, audio-video production, telecommunications, computer programming, advertising, and amusement facilities. Notably, companies engaged in cryptocurrency trading are excluded from this incentive.

Other Corporate Taxes

A capital registration tax of 0.48% (or 1.44% for the Seoul Metropolitan Area) is levied. A property tax ranging from 0.07% to 5% is levied on land and buildings for residential and commercial use, vessels, and aircraft. A comprehensive real estate holding tax, as a national tax, ranging from 0.5% to 5% is charged on a certain excessive aggregated statutory value of land and houses.

Nominal stamp duty is levied on agreements relating to the creation, transfer and alteration of rights. A securities transaction tax, currently set at 0.35%, applies to the transfer of unlisted Korean shares or interests. For listed shares traded on the Korea Stock Exchange in 2024 and 2025, flexible tax rates, as prescribed by the Presidential Decree, are 0.18% and 0.15%, respectively (including a special tax for rural development). Similarly, shares traded on the Korean Securities Dealers Automated Quotations (KOSDAQ) are subject to tax rates of 0.18% and 0.15% for the respective years. The tax rate remains unchanged at 0.1% for shares traded on the Korea New Exchange (KONEX).

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 varies, starting at 10% for a tax base of up to KRW 100 million and reaching the highest marginal rate of 50% for the excess over KRW three billion in the tax base.

The types of social security contributions in Korea are national pension (4.5% of salaries, capped at a monthly salary of KRW 5,900,000 until June 2024), national health insurance (4.004%, capped at KRW 4,789,880), 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.

Other Domestic Resources

National Tax Service

Country Comparison For Corporate Taxation

Source: The World Bank - Doing Business, Latest data available.

Accounting System

Accounting Standards

Listed companies and unlisted financial institutions are required to adopt K-IFRS (Korea- International Financial Reporting Standards). However, unlisted companies may choose either K-IFRS or Korean Generally Accepted Accounting Standards (K-GAAP) for financial accounting. Certain provisions of the tax laws (e.g. depreciation, foreign currency translations) have been amended to reflect the adoption of K-IFRS.

For more information, consult the Korea Accounting Standards Board website.

Accounting Regulation Bodies

FSS, Financial Supervisory Service

Accounting Law

Consult the Regulation on External Audit and Accounting on Financial Supervisory Service.

Difference Between National and International Standards (IAS/IFRS)

Consult the list of International Financial Reporting Standards (IFRSs) and corresponding Korean International Financial Reporting Standards as issued by the IASB (K-IFRS).

Accounting Practices

Tax Year

A company's tax year is its accounting period as specified in the articles of incorporation, which normally is a 12-month period. The tax year cannot exceed 12 months.

Accounting Reports

Financial statements (income statement, balance sheet, statement of cash flows, statement of changes in equity and statement of appropriation of retained earnings) and a business report must be filed each accounting year.

Publication Requirements

1) Companies listed at the stock exchange and KOSDAQ market must follow the following disclosure regulation:
- Periodic disclosure: business reports after the end of a fiscal year, semi-annual reports and quarterly reports.
- Timely disclosure: major business details as outlined in the Securities Exchange Act and the Disclosure Regulations of the KRX-Stock Market.
- Special disclosure: mergers, spin-offs, reports of business takeover and transfer, reports of acquisition and disposal of treasury stocks, etc.

2) External Auditing companies are required to disclose auditing reports.

3) Corporations issuing securities are required to disclose public securities registration statements, business prospectuses, records of securities issuances, etc.

More information is available at the Korea exchange website.

Accountancy Profession

Accountants

Certified public accountants (CPA) and certified tax accountants (CPTA) are specialists providing accounting and tax support to companies operating in Korea. CPAs offer the service on the performance of audits under the CPA law, while cerfied tax accountants offers the service on tax agent services, preparation of tax documentation and tax consultations under the Certified Tax Accountant Law. Auditors operates under the Korean standard on auditing.

Member of the International Federation of Accountants (IFAC)

The Korean Institute of Certified Public Accountants is a member of the International Federation of Accountants (IFAC).

Member of Other Federation of Accountants

The Korean Institute of Certified Public Accountants is a member of the Confederation of Asian and Pacific Accountants (CAPA), which represents the national accountancy organisation in the Asia-Pacific region.

Audit Bodies

Companies are required to utilise a statutory auditor for an annual audit of the organisation's financial health. Some examples of entities that offer statutory auditing services include Ernst and Young Global, Deloitte Touche Tohmasu, KPMG International, PricewaterhouseCoopers.

Allowable Deductions and Tax Credits

The Korean law provides for employment income deductions ranging from KRW 0 to 14,750 + 2% on the excess of KRW 100,000, according to the level of income. Standard personal deductions are also available: KRW 1.5 million per year per taxpayer plus KRW 1.5 million per year per spouse or dependant child when each of them has an adjusted gross yearly income of less than KRW 1 million. Additional deductions are available for handicapped persons (KRW 2 million), persons aged 70 or older (KRW 1 million), female taxpayers (KRW 500,000, conditions apply), and single parents (KRW 1 million).

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; if donations made during 2024 surpass KRW 30 million, an extra deduction equal to 10% of the surplus will be granted) 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 8 or older for up to two children and KRW 300,000 per child for the third and more is also available (from 2024, it also applies to grandchildren).
National pension contributions paid by a taxpayer based on National Pension Law, Veteran Pension Law, Civil Service Pension Law et similia, are fully 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.

Special Expatriate Tax Regime

Non-residents are taxed only on their Korea-sourced income. However, a non-resident is not entitled to claim any personal exemptions for their dependents (except for themselves), income deductions, and tax credits. Foreign residents who have stayed in the country for up to five years during the last ten-year period are taxed on Korea-source income. Nevertheless, foreign residents who have stayed in Korea for longer than five years during the last ten-year period are taxed on their worldwide income.

Foreign employees in Korea have the option to choose a flat tax rate of 19% for their employment income, instead of the progressive income tax rate with the highest marginal rate. This election is available for up to 20 years from their start date of employment in Korea, provided they began working in Korea by the end of December 2026.
Qualified foreign technicians/engineers providing services in Korea to a domestic entity are eligible for a 50% tax-exempt treatment on their wages for ten years from the start of their service in Korea, provided they commenced work in Korea by the end of December 2026. Additionally, a 70% tax reduction is applicable to wages received by qualified expatriates working in the categories of raw materials, parts, and equipment, for the initial three years, if they started working in Korea by December 31, 2022.

Capital Tax Rate

Inheritance and gift taxes of 10% to 50% depending on the tax base (after deduction of exempt amounts such as spouse, old age and dependent allowance) are levied on residents for assets acquired worldwide and on non-residents for assets located in Korea only. An annual tax is charged on the statutory value of land, buildings, houses, vessels and aircraft, with rates between 0.07% and 5%.

Employees in Korea are liable for social security contributions, as follows:
National pension: 4.5% of salary (capped at a monthly salary of KRW 5,900,000)
National health insurance: 4.004% of salary (capped at a monthly salary of KRW 9,579,760)
Employment insurance: 0.90% of salary.

An individual consumption tax (ICT) is assessed on certain goods and activities.

If a company or individual possesses land, buildings, ships, or aircraft on a specific assessment date, they will be liable to pay property tax on those assets. The tax rate varies from 0.1% to 4%, based on the category of property. Moreover, if an individual or company owns real estate like land or residential buildings, they will be subject to the comprehensive real estate tax along with the local property tax.

Acquisition tax is imposed on various items including real estate, motor vehicles, construction equipment, golf memberships, and vessels, if their acquisition cost exceeds KRW 500,000. The tax rate varies from 1% to 12%. In the Seoul metropolitan/concentrated area or for luxury items like villas, golf courses, and yachts, a weighted rate is applied.

The securities transaction tax applies to the transferor of shares, calculated at 0.35% of the share transfer price. However, for listed share transfers from January 1 through December 31, 2024, the rate is reduced to 0.18%. Shares listed on the Korea New Exchange (KONEX) are subject to a lower rate of 0.1%.

Gains arising from the disposal of capital assets are included in an individual’s taxable income but are taxed separately from global income (basic deductions of KRW 2.5 million/year and a special deduction for retaining for a long-term period may apply).

Korea does not levy a wealth tax.