Taxation is based on the annual business income. Since most of the foreign investors are corporations and thus liable to pay it, corporate tax makes up the largest portion of the total taxes related to foreign investment. Under the tax agreement, only the income from the permanent establishment of a foreign company is taxable. Permanent establishments here refer to branches, warehouses, stores, or other establishments for installment or construction projects. A company which has a right to sign a contract or which conducts its business and trade through an agent who on behalf of the company buys or sells its stocks is also subject to tax.
Personal Income Tax
Personal Income Tax is imposed on the global income and scheduler income of an individual. Global income refers to interest, dividends, real estate rental income, business income, wages and salaries, temporary property income, pension income, and other income, and scheduler income denotes retirement income, capital gains, and timber income. Resident individuals are taxed on their worldwide income. Nonresident individuals are taxed only on Korean-sourced income.
The Income tax rate comprises of a four-phase progressive tax rate.
Capital Gains Tax
The capital gains tax applies to the income accruing from the transfer of certain assets by an individual in a given year. “Transfer” under tax law refers to the de facto transfer for the value of assets arising from sale, exchange, capital contribution in kind to a corporation, etc. whether or not such transfer or assets are registered. A corporation is not subject to capital gains tax, and is instead taxed on income generated from this transfer in a form of corporate tax.
1. Real Property and Property of its kind
If lands, real estate or other properties are transferred, the capital gains tax shall be prorated according to the period of possession. For example, 50 percent for less than one year, 40 percent for one year to less than two years, and 6 percent to 33 percent for more than 2 years. In the case when the property is transferred before owner’s registration, the tax rate will be 70 percent. For specific share transfers, the holdings of a corporation that possesses excessive real property, such as the rights to use specific facilities (golf club membership, etc.), and business rights, a tax rate of 6 percent to 33 percent shall be applied regardless of the period of possession.
2. Equity Securities
In the case of unlisted shares, if a major stockholder of a large corporation transfers them after retaining them for less than a year, a tax rate of 30 percent shall be applied. If such stocks are retained for more than a year, a tax rate of 20 percent is applied. Minority stockholders of large corporations transferring unlisted stocks, shall be liable to a 20 percent rate, regardless of the period retained. If a small or medium corporation transfers its unlisted stocks, they will be liable to 10 percent tax, regardless of the period retained.
Listed stockholders, in principle, are normally not subject to tax. If, however, a majority shareholder transfers them after holding on to them for less than a year, he or she will be liable to a 30 percent rate of tax. If he or she retains the stocks for more than a year, the tax will be 20 percent.
Value Added Tax
Value-added tax (VAT) is imposed on the added value generated in each phase of production and distribution. VAT is an indirect tax and is calculated as an output tax minus input tax to be deducted. VAT is in principle a general excise tax imposed on the consumption of all goods and services as well as on the importation of goods. Goods and services for basic life necessities, education, and medical services are subject to exemption.
Comprehensive Real Estate Holding Tax
Residential houses, the land to which the house belongs and other land are liable to the comprehensive real estate holding tax. Tax rates range from 0.6% to 4%. The following are excluded from this tax: vacation homes or secondary residences, farmland, forests, pasture lots, factory sites within the standard area and land for private golf courses or luxury amusement.
For more information regarding national taxes, please contact the Helpline for foreigners at 82-02-397-1440~4
Lines of Urban Type Business for High-Taxation Exemption
SOC Facility, Banking, Construction for Foreign Market and Housing Construction, Electric Communication, State-of-Art Technology Industry (under the Industry Development Act and Act on Activation of Industrial Accumulation and Factory Establishment), Marketing, Transportation, Freight Terminal, Warehouse, Government-Invested
Corporation (over 20 percent of total shares), Recycling, Medical Service, Software Industry, Performance Facility (incl. Theatres), Cable Broadcasting Station, Urban Type Factory, Hire- Purchase Financing, Object Business etc. of Restructuring Company
Property taxes are levied on land, buildings, houses, vessels and aircraft according to the rates on p.110: with the exception of properties of the state, local autonomous bodies or foreign governments, and properties used directly by non-profit organizations to furnish religious or educational services which are non-taxable properties. There is also a minimum taxable amount of KRW 2,000. The base date of assessment is June 1st, while the payment dates vary as follows: buildings, vessels＋aircraft (July 16~31), housing (July 16~31＋Sept. 16~30), land (Sept. 16~30).
Resident tax is levied on income both on a pro rata basis and a per capita basis. With respect to the prorated tax on income, the amount of tax due is set at 10 percent of corporation tax, income tax or farmland tax. In the case of the per capita tax rate, individuals may be required to pay up to KRW 10,000 (according to the regulations). Corporations may be responsible to pay from KRW 50,000 to KRW 500,000 depending on the scale of their capital.
Business Place Tax
Business Place Tax is levied in a pro rata fashion according to the size of the business place, and levied in a pro rata fashion according to the size of the payroll. With regards to property, tax is levied at the rate of KRW 250 per square meter. For the sizes of less than 300 square meters, the tax is exempted. For a business discharging pollutants, a higher tax rate of KRW 500 per square meter is levied. In regard to employees, 0.5 percent of the payroll is levied monthly. For a business place with less than 50 employees, the tax is exempted. However, the business place tax rate is a standard tax rate. Therefore the actual tax rate can vary according to the regulations of different cities and counties.
* For more information on Local Taxes, contact Mr. Jai-Geun Lim at the Seoul Global Center 82-02-2171-2248.