Yuhan Hoesa (Limited Company)
Country code – KR
Legal Basis – Civil law
Legal framework – Korean Commercial Code
Company form – Yuhan Hoesa (Limited Company)
Liability - The liability of the member is limited to their capital contributed.
Capital – A Yuhan Hoesa has no minimum capital requirements. However, any foreign member should contribute at least KRW 100 million to the company capital.
Members – A Yuhan Hoesa may be incorporated by one or more members, without limits, who can be resident or non-resident, natural or juristic persons. Details of the members are not available to the public.
Directors – There must be at least 1 director, who may be an individual or corporation, resident or non-resident, and can be a member. If a Yuhan Hoesa has two or more directors, a representative director is required. Details of the directors are available publicly.
Secretary – Appointing a secretary is not required.
Registered Address – A company must have a registered and physical office in South Korea.
General Meeting – A Yuhan Hoesa is required to hold an annual general general meeting, however the physical meeting could be replaced by a members’ resolution by unanimous written consent
Electronic Signature – Permitted.
Re-domiciliation – Inward/outward re-domiciliation is generally not allowed.
Compliance – Companies must annually file tax returns for corporate income tax with the competent tax authorities within three months after the end of each fiscal year
Companies must also file annual accounts but generally, they are not required to have financial statements audited by an independent auditor. However, a Yuhan Hoesa may be subject to a mandatory external audit depending on several factors such as the number of employees and its total assets.
- Members not disclosed
- Managers not disclosed
- Corporate members permitted
- Corporate manager permitted
- Local manager required
- Registered office or agent required
- Annual meeting required
- Redomiciliation permitted
- Electronic signature
- Annual return
- Audited accounts
- Audited accounts exemption
- Exchange controls
- Civil law Legal basis
- 1 Minimum members
- KRW 100,000,000 Minimum registered capital
- KRW 100,000,000 Minimum paid up capital
- KRW Capital currency
- 100% Foreign-ownership allowed
- 2017 AEOI
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
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