CORPORATE TAXES
GENERAL NOTE
The information in this entry is current as of January 1998. For subsequent developments consultthe contact listed above.
TAXES ON CORPORATE INCOME
Corporation tax/The basic Korean corporate tax rates are as follows.
TAXABLE PROFIT %
First W100 million……………………………… 16
Balance…………………………………………………… 28
Resident tax surcharges/In addition to the basic tax rate, there is a resident tax surcharge of 10% on income tax liability.
CORPORATE RESIDENCE
A corporation having its head office or its principal office in Korea is a domestic corporation. a domestic corporation is a resident corporation. A nonresident corporation will generally be deemed to have a tax presence (i.e., permanent establishment) in Korea if one of the following applies.
1.It has any fixed place of business in Korea where the business of the entity is wholly or partly carried on.
2.It is represented by a dependent agent in Korea who has the authority to conclude contracts on its behalf.
3.Its employee provides services in Korea for more than 6 months within 12 consecutive months.
Exceptions include fixed places used only for purchasing, storage of property not for sale, advertising, publicity, collecting or furnishing of information, or other activities that are preparatory or auxiliary to the conduct of business.
Nonresident foreign corporations without domestic places of business in Korea are generally taxed (through withholding) at flat rates on gross receipts from Korean sources. Foreign construction and related companies that have a deemed permanent establishment in Korea but are not registered with the Korean tax authorities will be subject to Korean tax withholding
on payments from Korean customers.
The International Tax Coordination Law (ITCL) was enacted effective January 1,1996. This law provides the legal bases for taxation of all kinds of international transactions, focusing expecially on new transfer-pricing rules, advance pricing arrangements (APAs) and mutual agreement procedures. for APAs the law is effective from January 1,1997.
OTHER TAXES
Value-added tax/VAT is levied at a rate of 10% on sales and transfers of most goods and services, except exports.
Excess retained earnings tax/The excess retained earnings tax is levied at the rate of 15% on the excess retained earnings of unlisted large corporations that have net equity greater than W10 billion and of unlisted corporations that are affiliated with a large business group as described in the Monopoly Regulation and Fair Trade Law. Excess retained earnings
are approximately calculated by subtracting from the distributable income (after net operating losses, dividends-paid deductions and statutory retained earnings reserve) the greater amount of either 50% of the distributable income or 10% of paid-in capital.
Minimum tax/Corporate taxpayers should pay the minimum tax, which is defined as the greater of either 12% of the taxable income before various deductions and exemptions or actual tax after various deductions and exemptions. The minimum tax applies to the corporate tax exemption (see "Tax incentives" below) pursuant to the Tax Exemption and Reduction Control Law.
BRANCH INCOME
Branches re taxed in the same manner as locally incorporated companies. Foreign exchange for remittance from the branch to its head office is subject to licensing requirements of the Bank of Korea under the Foreign Exchange Control Law.
Furthermore, if the tax treaty betweeen Korea and the country of which the foreign corporation is a resident allows imposition of a branch profits tax, the tax is imposed on the adjusted taxable income of the Korean branch of the foreign corporation.
The branch profit tax is levied in addition to the regular corporation tax under the Corporation Tax Law. It is imposed at 25% (or at a reduced rate as provided in a treaty) of the adjusted taxable income of a foreign corporation effective from the taxable year beginning on or after January 1,1996.
INCOME DETERMINATION
Inventory valuation/Inventories are generally stated at the lower of cost or market. Any one of about eight valuation methods, including FIFO, LIFO and weighted-average, can be elected for tax purposes. Inventory valuation methods must be consistent for book and tax purposes.
Capital gains/Capital gains are included in taxable income. Gains from the sale of land or buildings are also subject to additional tax at rates ranging from 22% to 44%, including resident surtax thereon. Capital losses are deductible from taxable income (whatever the source). The Korean tax syste
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