Korea, Republic of

Corporate - Deductions

Last reviewed - 27 February 2024

In general, expenses incurred in the ordinary course of business are deductible, subject to the requirements for the maintenance of support documents.

A corporation’s disbursements of more than KRW 30,000 for goods or services provided are required to be supported by qualifying payment evidence, such as credit card sales vouchers, cash receipts, tax invoices, and those vouchers and invoices stored in the company’s enterprise resource planning (ERP) system. The corporation is required to maintain these documents for five years (seven years if cross-border transactions were involved).  If the corporation fails to maintain proper evidence, a 2% penalty shall be levied on the amount of disbursement (subject to a ceiling per year).

Accrued expenses are not deductible until the expenses are fixed or determined.

Depreciation and amortisation

Depreciation of all property, plant, and equipment (PP&E), which includes buildings, machinery, and vehicles, used in business to generate income is allowed as a deduction for CIT. Generally, interest on debt acquired to purchase, manufacture, or construct PP&E must be capitalised until the PP&E is operational. This does not apply to the interest associated with the expansion or improvement of existing PP&E. A detailed list of fixed assets, gross values (including capitalised interest), the useful lives of the assets, and the current year’s depreciation charge must be submitted to the tax authorities when filing the annual CIT return.

The tax law allows the following methods for calculating depreciation:

  • Straight-line or declining-balance method for tangible fixed assets, other than plant and buildings.
  • Straight-line method for plant, buildings, and intangible assets.
  • Service-output or straight-line method for mining rights.
  • Service-output, declining-balance, or straight-line method for tangible fixed assets used in mining.

In determining depreciation using a straight-line method, salvage value of the assets is regarded as zero. However, where the declining-balance method is used, 5% salvage value is required. Changes in the depreciation method must be approved by the tax authorities in advance, and such approval may only be obtained in exceptional cases (i.e. merger between two corporations having different depreciation methods). Although the tax law specifies the standard useful lives for each type of assets, the useful life of a fixed asset can be increased or decreased by 25% of the standard useful life at the taxpayer’s election. The elected depreciation method and useful life should be consistently applied. Also, a taxpayer can apply for a change to the useful life within 50% of the standard useful life, which requires an approval from tax authorities.

The standard useful life and the scope of elective useful life for assets are provided in the following tables:

Tangible fixed assets Standard useful life (years) Scope of elective useful life (years)
Vehicles (excluding those used for transportation businesses and leasing service of machinery, equipment, and consumer goods), tools, equipment, and fixtures 5 4 to 6
Ships and aircraft (excluding those used for fishery, transportation, and leasing service of machinery, equipment, and consumer goods) 12 9 to 15
All buildings and constructions of brick structure, block structure, concrete structure, mud structure, mud wall structure, wooden structure, wooden frame mortar structure, and other structures 20 15 to 25
All the buildings and constructions of steel-frame/iron bar concrete structures, stone structures, brick/stone structures, steel-frame structures 40 30 to 50

Note that machinery and equipment used for specific industries shall be subject to different useful lives from four years (e.g. bag manufacturing) to 20 years (e.g. water supply service).

Intangible fixed assets Useful life (years)
Goodwill, design rights, utility model rights, trademarks 5
Patents 7
Fishery rights, extraction rights under the law of development of mineral resources at the sea bottom (may elect activity method), right of management for toll roads, water rights, right of use for electricity and gas service facilities, right of use for tap water facilities for industrial use, right of use for general tap water facilities, right of use for heating facilities 10
Mining rights (may elect activity method), right of use for exclusive telegraph and telephone facilities, right of use for exclusive sidetracks, right of management for sewage disposal, right of management for tap water facilities 20
Right of use for dams 50

Note that for used fixed assets (including assets acquired through mergers or spin-offs) that have been used for more than half of their standard useful lives, a new useful life may be filed with the tax authorities of between 50% of the standard useful life and the standard useful life.

According to the CITL, depreciation is generally allowed for tax deduction only when expensed for book purposes. However, in order to alleviate any dramatic increase in tax burden due to decreased depreciation expenses through the adoption of K-IFRS, additional expense deduction may be allowed through tax adjustment. For tax purposes, depreciable assets acquired by a company adopting K-IFRS on or before 2013 may be depreciated up to the tax deduction limit computed without the adoption of K-IFRS. Depreciable assets acquired by a company adopting K-IFRS after 2014 may be depreciated using the standard useful lives only if they are the same type of existing assets used for the same business line and the calculation method of deduction is regulated.

Deduction of company car expenses

For company cars provided to officers or employees (whether owned or leased), the CITL requires a company to have appropriate operation records or sufficient evidence supporting the usage for company business purposes in order to claim the deduction of company car expenses. Without the maintenance of operation records, a company is allowed to deduct company car expenses up to KRW 15 million per year. Out of company car expenses, the deduction of the depreciation of a company car is limited to KRW 8 million annually for CIT purpose. In addition, the deduction of company car expenses, including depreciation, shall be disallowed for the portion of private use as evidenced by operation records.


Amortisable goodwill for tax purposes is defined as ‘value transferred with consideration, apart from transferred assets included in business transfer, valuated appropriately by considering business premium factors of the transferor such as permission/licence, legal privileges, geographical advantages, trade secrets, credit, reputation, transaction partners, etc.' Goodwill shall be amortised over five years using the straight-line method for tax purposes.

Start-up expenses

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.

Interest expenses

Interest incurred in the ordinary course of business is deductible as long as the related loan is used for business purposes. There are, however, a number of exceptions to the general rule, as follows:

  • If a company’s borrowings from an overseas controlling shareholder, or from a third party under a payment guarantee by the shareholder, exceed two times (six times in case of banking business) the equity invested by the shareholder, the interest and discount as to the relevant excessive borrowing will be disallowed and further treated as a dividend to the shareholder (in case of the borrowings from the shareholder).
  • If a company’s net interest expense for the borrowings from foreign related parties exceeds 30% of the company’s adjusted taxable income, the excess interest shall be treated as non-deductible expense.
  • If the interest expense on a hybrid financial instrument paid by a company to a foreign entity is not included in the taxable income of the foreign entity within an appropriate period (as designated by the tax law), it shall be included in the taxable income of the company for the year when the appropriate period ends.
  • Debenture for which the creditor is unknown.
  • Bonds and securities on which recipient of interest is unknown.
  • Construction loans and loans for the purchase of land and fixed assets up to the date on which the assets are acquired or completed must be capitalised as a part of the cost of the asset and depreciated over the life of the asset. Interest after the date of completion or acquisition is deductible as incurred.
  • Interest on loans related to non-business purpose assets or funds loaned to related parties.
  • Interest on related party loans if the period from the borrowing date to interest payment date exceeds one year

Contingent liabilities

In general, contingent liabilities are not deductible, except for reserves under the following items, which are counted as deductible expense within the tax limit:

    • Reserves for bad debts.
    • Liability reserves and emergency reserves prescribed in the Insurance Business Law.
    • Reserve for cash surrender value, made by insurance companies under the Insurance Business Act
    • Reserves for non-profit organisations.
    • Reserves for the write-off of a compensation claim set aside by trust guarantee funds, etc. as stipulated under tax law in each business year.

    The amounts enumerated below are also counted as deductible expenses in calculating income for the business year:Bad debt

    • The amount of gains from insurance claims used to acquire the same kinds of fixed assets as the lost fixed assets, or to improve the damaged fixed assets within two years after the first day of the business year following the business year in which the gains fall.
    • The amount of a beneficiary’s share of construction costs received by a domestic corporation engaged in the electricity or gas business, etc. used for the acquisition of fixed assets.
    • The amount of certain national treasury subsidies actually used for acquisition or improvement of fixed assets for business.

    Bad debt

    For companies that are not financial institutions, a doubtful accounts reserve is allowed as a deduction for tax purposes at the greater of 1% on the tax book value of the receivables at a year-end or actual bad debt ratio (deductible bad debts in a current year divided by the tax book value of receivables as of the preceding year end).  Bad debts are allowed as a deduction when certain legal proceedings are satisfied or the statute of limitations for the claims has lapsed.

    Charitable contributions

    Donations to public interest entities, such as government bodies and social welfare organisations, as well as donations for academic research, technical development, etc., are classified as donations subject to the 50% limitation, which are tax-deductible at up to 50% of the taxable income for the concerned fiscal year after deduction of net operating loss (NOL). Other qualified donations to public entities prescribed by the CITL are also tax-deductible at up to 10% of the taxable income for the fiscal year after the deduction of donations subject to the 50% limitation and NOL.

    The amount in excess of such deduction limit may be carried over for ten years. Donations other than the above qualified donations will not be deductible for tax purposes.

    Employee remuneration

    There is no statutory limit for employee remuneration as long as it is reasonable, which includes salaries, wages, stipends, bonuses (except bonuses paid based on the disposition of accumulated profits), retirement payments, pensions, and meal and housing allowances, as well as all other kinds of subsidies, payments, and compensation. Remuneration of foreign employees is determined according to their employment contracts.

    Pension expense

    Employers hiring one or more employees are required to set aside severance pay or retirement pensions for their employees. Defined contribution (DC) and defined benefits (DB) are the two available schemes for the retirement pension system. Under the DC scheme, the premiums paid by the employer are deductible upon payment, while deductions for the reserve under the DB scheme are subject to a tax deduction limit.

    Payment for executives or directors

    Bonuses paid to executives or directors in excess of the amount determined in the articles of incorporation or payment policy resolved at a shareholders’ meeting, etc. or bonuses paid based on the disposition of accumulated profits are not deductible.  Also, severance benefits paid to directors in excess of the amount determined in the articles of incorporation or payment policy resolved at a shareholders’ meeting, etc. or the amount prescribed in the tax law in absence of relevant article under the articles of incorporation or payment policy are not deductible.

    Entertainment expenses

    Entertainment expenses (renamed to corporate business promotion expenses, effective 1 January 2024) of more than KRW 30,000 (KRW 200,000 in case of expenditure for congratulations and condolences) on an event basis must be supported by corporate credit card vouchers, cash receipts, or tax invoices in order to be deductible. In addition, the entertainment expenses in excess of the tax limit are not deductible. 

    The deductible limit for entertainment expenses in a business year is computed as:

    • an amount calculated by multiplying KRW 12 million (KRW 36 million for an SME) by the number of months in the respective business year divided by 12, plus
    • an amount calculated by multiplying the sales revenue for a year by the rates listed in the following table (in the case of transactions between related parties, 10% of the amount calculated by multiplying the sales revenue by the following rates shall be applied).
    Amount of gross receipts (KRW) Rate
    10 billion or less 0.3%
    Over 10 billion up to 50 billion KRW 30 million + 0.2% of the excess over KRW 10 billion
    Greater than 50 billion KRW 110 million + 0.03% of the excess over KRW 50 billion

    Insurance premiums

    Insurance premiums paid to an insurance company are deductible if the business enterprise is the listed beneficiary. Insurance premiums for which the beneficiary is the employee are also deductible; however, they are treated as salaries for the employees and are subject to WHT on earned income (this excludes the severance insurance premium or social security taxes that are borne by employers).

    Fines and penalties

    Fines, penalties, and interest on underpayment of taxes are not deductible.


    Income taxes are generally not deductible in determining income subject to CIT.

    Net operating losses (NOLs)

    In general, an NOL carryforward is allowed for 15 years for the NOL incurred in the fiscal year starting on or after 1 January 2020 (10 years for the NOL incurred in the fiscal year starting on or after 1 January 2009). The CITL restricts a company from deducting the NOL in excess of 80% of the taxable income for the fiscal year beginning 1 January 2023 and thereafter. NOL carryforward of a Korean branch of a foreign company is also restricted to 80% of current-year taxable income. However, SMEs and certain qualifying companies under recovery process, etc., which will be exempt from this rule, are allowed to deduct the NOL carried over from prior years without limitation. Generally, NOL carryback is not allowed. However, SMEs can elect to carry back an NOL for one year if they have duly filed tax returns for the year when NOL was incurred and the preceding year.

    Payments to foreign affiliates

    With sufficient supporting documentation and under the arm’s-length principle, interest, royalty, and management service fees paid to foreign affiliates are deductible for CIT purposes.

    Under the LCITA, the following conditions must be met in order for intra-group service fees, such as a management service fee charged by a foreign related party to a domestic company, to be deductible:

    • The services must be provided based on an agreement entered into by the service provider prior to the provision of service.
    • The provision of the service can be verified by a schedule of services, description of services, description of the company providing services and its employees, detailed explanation of expenses incurred, and other supporting documentation.
    • A company must be able to anticipate the company’s additional profit or reduced expense through the services provided by a foreign affiliate.
    • Payment for the provided services should be consistent with arm’s-length standards.