South Korea Tax & Business Guide - Deloitte

/Home/Q-R-S Countries/South Korea (Country Code 82)/South Korea Tax Resources

Basic facts
Population 48.5m Inflation 2.9% (2005)*
Main languages Korean GDP per head US$16,490*
Currency Won (KRW) GDP growth 3.9% (2005)*
Economic communities Asia Pacific Economic Co-operation, OECD, WTO
GDP sources 3.3% agriculture, 41.6% industry, 55.1% services
*Economist Intelligence Unit.
Political environment

The Republic of Korea evolved into a presidential democracy in the 1990s. The constitution provides for a directly elected president, who serves for a single five-year term and appoints the prime minister and the cabinet. A unicameral National Assembly is elected at four-year intervals.

The current president, Roh Moo-hyun, took office in February 2003. The centre-left Uri Party won the general election in April 2004. The new prime minister, Lee Hae-chan, was confirmed in June 2004. A presidential election is due in December 2007.
Foreign trade and investment
Exports US$290.3bn (2005)* Imports US$256.1bn (2005)*
*Economist Intelligence Unit.

Major exports: Semiconductors, cars, cellular phones and other wireless devices, computers, ships and petrochemicals.

Leading export markets: China (largest), the US and Japan.

Korea ranks 25th of 60 countries in the Economist Intelligence UnitÌs business environment rankings.

Institutional barriers to foreign investment were largely removed during the 1990s, and only a few industries require investors to find local joint-venture partners.
Business and financing
Business forms Joint-stock corporations

Foreign investment may take the form of a branch, an incorporated subsidiary or a joint venture. The company form most frequently used by foreign investors is the joint-stock corporation, which may issue a variety of investment securities, including preferred shares, bonds and debentures. No permit or licence is required to establish a joint-stock corporation. Unlimited- or limited-partnership companies are rare. Branches are not permitted in sectors where investment is restricted.
Labour environment
Unemployment rate 3.6% (2005)* Minimum wage KRW 3,100 (hourly)
*Economist Intelligence Unit.

National pensions and employment insurance are the most important social welfare programmes.

Foreign nationals face no limitations provided they have an appropriate visa.
Taxation
Corporate tax
Main rate Effective rate, 27.5%

Korean corporations are taxed on their worldwide income; foreign corporations are taxed on Korean-source income only. A domestic corporation is one that has its head or main office in Korea. This includes all companies incorporated in Korea, as they are required to have their main office in the country. A foreign company that is effectively managed in Korea is treated as a domestic company for tax purposes. The effective rate of tax is 27.5%. A branch profits tax applies under some treaties.
Individual tax
Progressive rates to 38.5%

Resident individuals are taxed on worldwide income; non-residents are taxed on Korean-source income only. An individual who has a Korean domicile, or stays in Korea for one year or longer, is considered to be resident for tax purposes. Domicile involves a close attachment to Korea, depending on the individualÌs work and family situation. Individuals are taxed at progressive rates up to 38.5%. The overseas living allowance of expatriate employees is tax-exempt up to 30% of the monthly income. Expatriate employees may elect to be taxed at a flat rate of 18.7%. Exemptions are available to qualified expatriate engineers.
Capital gains
Taxed as normal income

Capital gains of corporations are generally taxed as normal income. Individuals are subject to tax on certain specified capital gains, including gains on the transfer of land and buildings or rights in real estate, transfers of unlisted shares, and transfers of certain holdings in companies owning real estate. Individuals are exempt from a gain on the transfer of a house that was owned for three years prior to sale where the selling price does not exceed KRW 600m. Gains of individuals are generally taxed at the same rate as general income, but special rates can apply to certain gains on listed shares.

Non-residents are taxed on gains from the disposition of securities at 11% of the sale price or 27.5% of the difference between the sale price and original cost, whichever is less.
Indirect tax
Standard rate 10%

Value-added tax (VAT) applies to most transactions. The standard rate is 10%, and a zero rate applies to exports, services rendered outside of Korea, agricultural machinery and equipment, fertilisers and international transport. Exemptions include unprocessed basic foodstuffs, agricultural and livestock products, land, financial and insurance services, and leasing of real estate.
Tax administration and compliance
Tax year Corporations: accounting year; Individuals: calendar year

Companies must make an advance payment of tax after six months of their tax year, based on the liability of the previous year. The final payment of tax is due with the self-assessment tax return, three months after the end of the tax year. Individuals are subject to deduction of tax at source on salaries, but individuals receiving certain other categories of income must make an advance tax payment after six months. Any balance of tax due is payable with the return, which must be submitted in May following the end of the calendar year.
Additional tax information
Withholding taxes Dividends 27.5%, Interest 27.5%, Royalties 27.5%. Tax withholding at domestic rather than treaty rates may be required for certain payments to jurisdictions regarded as tax havens.
Tax treaties Korea has concluded more than 60 tax treaties.
Dividends Dividends are taxable.
Revenue protection There is transfer-pricing legislation, and some anti-tax-haven rules apply.
Groups There is no provision for group taxation.
Incentives Technology and human resources development; foreign investment promotion; productivity.
Other taxes Acquisition tax, Aggregate real estate tax, Registration tax, Special consumption tax, Import duties, Inhabitant tax, Minimum tax, Property tax, Securities transaction tax, Stamp tax.