DOING BUSINESS IN KOREA (REP.)

Posted By Romain Ponsot on Oct 6, 1907 in Doing Business


Date de publication : 06-10-1907

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The following information are for the sole purpose  of providing a general overview of  the local taxation of the Corporate tax aspects of the country. In any case, it can not replace a tax advice, or be considered as an official information.

 

Yes we tax in Korea (Rep.)

 

Flash News

New tax reform: No specific information

New tax treaties:

  • Tax treaty between Korea and Kenya enters into force.

Local tax advisors

No specific information on the local tax advisors.

Local tax administration

Website Tax administration: Click here

Permanent Establishment

There is no properly permament establishement definition. However, the local concept of Domestic place of business is similar to the definition of permanent establishement:

  • Dependent agent who habitually concludes contracts in the name of a non-resident company (except is the activity is limited to purchase of goods);
  • Fixed place of business, building site, construction, assembly or installation and any related supervisory activity, for a period of 12 months.

Resident companies are taxed on their worldwide income. However, non-resident companies are only taxed on their revenues derived from Korea sources.

Entities are considered to be resident for tax purposes in Korea if their place of management & control is in Korea.

Note: the definitions of permanent establishment and place of residence are subject to the relevant provisions of any applicable double tax treaty, if any.

Corporate Income Tax

The general CIT rate is a progressive tax rate up to 22%.

Non-taxable income includes the following:

  • Dividends are not exempt but they may be a deduction in certain cases

Non-deductible expenses includes the following:

  • Dividends are generally not deductible;
  • Interest in excess of the thin-capitalization threshold ;
  • Fines and penalties;
  • CIT and similar taxes ;

Carry forward: Yes 10 years, but some restrictions may apply

Carry back: No

Annual tax returns are established by the company on a self-assessment system.

Companies shall pay an advance payments within 2 months before the end of each six month period; and the balance must be paid at the time of filing the tax return.

Whithholding Taxes (payment to foreign companies)

The local tax rates in Korea are the following, subject to the provisions of an applicable double tax treaty, if any.

There is 20% WHT on the profits paid from a branch to its foreign head office.

The general effective rate of WHT on dividends is 22% (including local CIT).

The general rate of WHT on interest is 22% (including local CIT).

The general rate of WHT on Royalties is 22% (including local CIT).

The general rate of WHT on management fees is 22% (including local CIT).

The general rate of WHT on technical services is 22% (including local CIT).

Capital gains

Capital gains are taxed as general income under the regular CIT.

Note: in certain cases capital gains are not taxable.

VAT

Standard VAT tax rate is 10%

Zero-rated supplies include, subject to certain conditions:

  • exports of goods;
  • export of services:
  • Aircraft and vessels engaged in commercial international traffic;
  • transport of goods and services directly related to import and export of goods;

Exempt supplies include, subject to certain conditions:

  • Basic essentials foodstuffs, agricultural products… ;
  • Financial services
  • Insurance services
  • Training and education
  • Passenger transportation services;
  • Leasing of real estate;

Note: exempt transactions differ from zero-rated transactions in that the input VAT associated with exempt transactions is not deductible.

Certain non-resident companies (which are not required to register and incur Korea   VAT in the course of their business activities in Korea) may apply for a refund. The procedure is the same than for resident companies.

No other specific information of VAT in Korea.

Miscellaneous

The general statute of limitation is 5 years starting at the end of the year in which the tax return was filed; and 7 years in the case where no tax return has been filed.

The statute of limitation is extended to 10 years for tax evasion.

There is a foreign exchange control in Korea. Ministry of Strategy and Finance may apply safeguard measures under certain circumstances.

There are thin capitalization rules in Korea. The interests derived from loans between related parties may not be deductible in case where interest exceeds some ratios.

 

 

 

Do not hesitate to share your experience in Korea with us in the comments below. Any comments are welcome!

 

Romain Ponsot

Romain est conseiller en fiscalité au sein d’un leader mondial du shipping. Grâce à son expertise tant en matière de TVA, fiscalité internationale, problématiques intragroupe qu’en matière de fiscalité des particuliers, Romain vous guidera au travers d’articles professionnels et humoristiques. 

Romain, poète dans l’âme, aime particulièrement le couscous et passe beaucoup de temps à glacer ses souliers. Profil LinkedIn
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