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Korea

Yuhan Hoesa (Limited Company)

Taxes

Tax residency – A company is tax resident in Korea if it maintains its headquarters or place of effective management in Korea.

Basis – Tax resident entities are taxed on their worldwide income.

Tax rate – Corporate tax is progressive in Korea. The tax rate is 10% on the first KRW 200 million, 20% on taxable income between KRW 200 million and 20 billion, 22% on taxable income between KRW 20 billion and 300 billion, and 25% on income above KRW 300 billion. A local income tax of 1%, 2%, 2.2% and 2.5% applies respectively.

Companies are subject to a minimum tax levied at a rate of 10% on income up to KRW 10 billion, 12% on income between KRW 10 billion and 100 billion, and 17% on income over KRW 100 billion. SMEs are subject to a minimum tax of 7%, 8% or 9%.

Capital gains – Generally, capital gains are treated as ordinary income and subject to the standard rates. Capital gains from the disposal of non-business purpose land or houses may be subject to an additional capital gains tax of 10%.

Dividends – Dividends received are subject to corporate income tax at standard rates. A 100% deduction may be available for qualified holding companies that own more than 80% (40% in case of a listed subsidiary) ownership in the paying entity, and 80% deduction if the share ownership is 80% or less. Non-qualified holding companies may be eligible for a 100% deduction for share ownerships of 100%, 50% for more than 50% (30% if it is a listed subsidiary) and 30% for share ownership of 50% or less (30% if it is a listed subsidiary)

Interests – Interests received are subject to corporate income tax and taxed at standard rates.

Royalties – Royalties received are subject to corporate income tax and taxed at standard rates.

Withholding Taxes – Dividends paid to non-resident entities or individuals are subject to an effective 22% withholding tax, unless rate is reduced due to a tax treaty.

Interests paid to non-residents on regular loans and royalties are subject to a 22% withholding tax. Interest on bonds is subject to a 15.4% tax. Rates may be reduced under a tax treaty. Interest payments made to entities located in jurisdictions deemed as tax havens may additionally be subject to local withholding tax rates.

Payments on services to non-residents are subject to 22% withholding tax.

Foreign-source income – Foreign-source income is generally subject to corporate income tax, unless a tax treaty provides otherwise. A foreign tax credit or deduction may be available for foreign tax paid. Income from foreign-subsidiaries may not be included in the taxable income of a Korean holding company until the dividends are distributed, unless the foreign subsidiary qualifies as a controlled foreign company (CFC).

Losses – Losses may be carried forward for 10 years. The carry back of losses is not permitted. Losses may be offset by 70%, except for SMEs.

Inventory – Inventory may be valued at lower cost, market selling value, or replacement price. Last in First Out (LIFO) is not allowed for tax purposes.

Anti-avoidance rules – Transactions between related entities must be conducted at arm’s length and certain information must be disclosed when filling the tax return. Subsidiaries of foreign companies with annual sales of more than KRW 100 billion and a transaction volume with foreign entities of more than KRW 50 billion are required to submit additional transfer pricing documentation.

If a foreign-owned company has borrowed from the foreign shareholder, the interest expenses on the debt exceeding 200% of the borrower’s equity are not deductible.

CFC legislation provides that undistributed earnings of a foreign subsidiary that have been subject to an average tax rate of 15% or less for the 3 most recent years may be subject to Korean taxes.

CFC rules may not apply if the foreign subsidiary is a trading company, has fixed facilities and its controlled and managed abroad.

Labor taxes – There are several social security funds and insurances: national pension, national health insurance and employment insurance. Both employers and employees must contribute about 8.5% of employees’ salaries. There is also a worker’s accident compensation insurance that ranges from 0.85% to 28.25%.

Tax Credits and Incentives – Foreign-invested companies engaging in certain qualified high-technology activities may be eligible for a 100% corporate income tax exemption for 5 years.

Certain qualified SMEs may apply for special tax deductions that range from 5% to 30% up to KRW 100 million.

There are several tax credits available for companies investing in facilities for productivity enhancement, and safety, commercialization of new-growth engine and core technologies, job creation, payroll increase and re-hiring retired female employees.

Certain companies investing in R&D, environmental protection and energy-saving facilities are also eligible for tax credits.

Personal income tax – An individual is considered tax resident in Korea, if he or she resides 183 days or more in Korea.

Tax residents are subject to tax on their worldwide income. However, short-term resident foreigners who have lived less than 5 years in a period of 10 years in Korea, are taxed only on foreign-source income paid in or remitted to Korea.

Income tax rates are progressive up to 46.2%, including local taxes. Investment income, such as dividends or interests are generally taxed at 15.4% tax rate. Capital gains are generally subject to tax at standard rates, however other rates may apply depending on the asset class and holding period.

Other taxes – There is a real property tax at a rate of between 0.07% and 5%. Transfer of securities are taxed at 0.5% for unlisted shares or interest, and 0.3% for listed shares. There is an acquisition tax charged on the price of real estate, motor vehicles, construction equipment, boats...etc. ranging from 2% to 7%. There is also a registration tax from 0.02% to 5% upon the registration of titles or rights.

Inheritance and gift taxes range from 10% to 50%.

The V.A.T. standard tax rate is 10%. Certain transactions are exempt from V.A.T.

  • Tax transparent entity
  • Offshore Income Tax Exemption
  • Offshore capital gains tax exemption
  • Offshore dividends tax exemption
  • CFC Rules
  • Thin Capitalisation Rules
  • Patent Box
  • Tax Incentives & Credits
  • Property Tax
  • Wealth tax
  • Estate inheritance tax
  • Transfer tax
  • Capital duties
  • 27.5% Offshore Income Tax Rate
  • 27.5% Corporate Tax Rate
  • 27.5% Capital Gains Tax Rate
  • 27.5% Dividends Received
  • 22% Dividends Withholding Tax Rate
  • 22% Interests Withholding Tax Rate
  • 22% Royalties Withholding Tax Rate
  • 0 Losses carryback (years)
  • 10 Losses carryforward (years)
  • Average costFIFO Inventory methods permitted
  • 8.5% Social Security Employee
  • 8.5% Social Security Employer
  • 46.2% Personal Income Tax Rate
  • 10% VAT Rate
  • 96 Tax Treaties

Country details

South Korea
KRW
Seoul
Asia
k o - K R , e n
48422644

Tax treaties

Country Type Date Signed
Colombia DTC  2010-07-27
Panama DTC  2010-10-20
Gabon DTC  2010-10-25
Bermuda TIEA 2012-01-24
Samoa TIEA 2015-05-15
Singapore DTC  1979-11-06
Korea, Democratic People's Republic of DTC  2000-12-16
Marshall Islands TIEA 2011-05-31
Greece DTC  1995-03-20
Ecuador DTC  2012-10-08
Cook Islands TIEA 2011-05-31
Kyrgyzstan DTC  2012-12-11
Nigeria DTC  2006-11-06
Denmark DTC  2007-11-11
Andorra TIEA 2014-10-23
Sudan DTC  2004-04-09
Saudi Arabia DTC  2007-03-24
Bahamas, The TIEA 2011-08-04
Peru DTC  2012-05-10
Vanuatu TIEA 2012-03-14
Ireland DTC  1990-07-18
Bahrain DTC  2012-05-01
Uruguay DTC  2011-11-29
Brunei Darussalam DTC  2014-12-09
Japan DTC  1998-10-08
Philippines DTC  1984-02-21
Venezuela DTC  2006-06-28
Mongolia DTC  1992-04-17
Spain DTC  1994-01-17
Chile DTC  2002-04-18
Australia DTC  1982-07-12
Bangladesh DTC  1983-05-10
United States DTC  1976-06-04
Jordan DTC  2004-07-24
Iceland DTC  2008-05-15
Austria DTC  1985-01-08
China DTC  1994-03-28
Germany DTC  2000-03-10
Qatar DTC  2007-03-27
Russian Federation DTC  1992-11-19
Nepal DTC  2001-10-05
Portugal DTC  1996-01-26
Hungary DTC  1989-03-29
Poland DTC  1991-06-21
Belgium DTC  1977-08-29
India DTC  1985-07-19
Slovenia DTC  2005-04-25
Israel DTC  1997-03-18
Algeria DTC  2001-11-24
United Arab Emirates DTC  2003-09-22
Italy DTC  1989-01-10
Ukraine DTC  1999-09-29
Pakistan DTC  1987-04-13
Albania DTC  2006-05-07
New Zealand DTC  1981-10-06
Viet nam DTC  1994-05-20
Croatia DTC  2002-11-13
Norway DTC  1982-10-05
Netherlands DTC  1978-10-25
Malaysia DTC  1982-04-20
Estonia DTC  2009-09-23
Oman DTC  2005-09-23
Mexico DTC  1994-10-06
Romania DTC  1993-10-11
Egypt DTC  1992-12-09
Lao People's Democratic Republic DTC  2004-11-29
Canada DTC  2006-09-05
Brazil DTC  1989-03-07
South Africa DTC  1995-07-07
Indonesia DTC  1988-11-10
Lithuania DTC  2006-04-20
Slovakia DTC  2001-08-27
Turkey DTC  1983-12-24
Papua New Guinea DTC  1996-11-23
Czech Republic DTC  1992-04-27
Uzbekistan DTC  1998-02-11
Myanmar DTC  2002-02-22
Kazakhstan DTC  1997-01-18
Fiji DTC  1994-09-19
Luxembourg DTC  1984-11-07
Kuwait DTC  1998-12-05
United Kingdom DTC  1996-10-25
Bulgaria DTC  1994-03-11
Iran DTC  2006-07-06
Switzerland DTC  1980-02-12
Malta DTC  1997-03-25
Tunisia DTC  1988-09-27
Sweden DTC  1981-05-27
Latvia DTC  2008-06-15
Morocco DTC  1999-01-27
France DTC  1979-06-19
Azerbaijan DTC  2008-05-19
Sri Lanka DTC  1984-05-28
Finland DTC  1979-02-08
Thailand DTC  2006-11-16
Belarus DTC  2002-05-20

Procedures

We can help you incorporate a Yuhan Hoesa (Limited Company) in South Korea.
Please, contact us to request a free, no obligation consultation.

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