South Korea: Business Environment
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.
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.
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.
South Korea | OECD | United States | Germany | |
Number of Payments of Taxes per Year | 12.0 | 10.1 | 10.6 | 9.0 |
Time Taken For Administrative Formalities (Hours) | 174.0 | 163.6 | 175.0 | 218.0 |
Total Share of Taxes (% of Profit) | 33.2 | 41.6 | 36.6 | 48.8 |
Source: Doing Business, Latest available data.
Basic income tax | |
Up to KRW 14 million | 6% |
From KRW 14 to 50 million | 15% |
From KRW 50 to 88 million | 24% |
From KRW 88 to 150 million | 35% |
From KRW 150 to 300 million | 38% |
From KRW 300 million to 500 million | 40% |
From KRW 500 million to 1 billion | 42% |
Over KRW 1 billion | 45% |
Local income surtax | |
Up to KRW 14 million | 0.6% |
From KRW 14 to 50 million | 1.5% |
From KRW 50 to 88 million | 2.4% |
From KRW 88 to 150 million | 3.5% |
From KRW 150 to 300 million | 3.8% |
From KRW 300 to 500 million | 4% |
From KRW 500 million to 1 billion | 4.2% |
Over KRW 1 billion | 4.5% |
Alternative minimum tax (business income of a resident individual and Korean-source business income of a non-resident individual - does not apply to employment income) |
The greater of: 45% of income tax liability (35% applied to income tax liabilities of up to KRW 30 million) before exemptions or actual tax after exemptions |
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.
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.
Different withholding taxes may apply to non-residents of countries with which South Korea signed a tax treaty, with rates as low as 0%.
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Latest Update: November 2024