Korea, Republic of
Value-added tax (VAT)
VAT is levied at a rate of 10% on the supply of goods and services, except zero-rated VAT on certain supply of goods and services (e.g. goods for exportation, certain eligible services rendered to non-residents earning foreign currency, international transportation service by ships and aircraft) and exemption on certain goods and services (e.g. basic life necessities and services, such as unprocessed foodstuffs and agricultural products; medical and health services; finance and insurance services; duty-exempt goods). The zero-rated VAT only applies to the supply of certain services that are provided to a non-resident or a foreign corporation without having a PE in Korea on a reciprocal basis. They include professional services (e.g. legal, accounting, tax, advisory, market survey, management consulting), business support services (e.g. human resources outsourcing, office support, employment placement agency), and investment advisory services.
Electronic VAT invoicing is a compulsory requirement. If a taxpayer fails to issue the electronic VAT invoice or report electronically to tax authorities, the relevant penalties shall be imposed.
If a foreign company or a non-resident provides certain electronic services to a consumer (excluding the person having Korean VAT registration) in Korea via an information and communication network (as defined under relevant Korean act), it shall comply with the requirements of a simplified VAT registration and VAT return filing, together with VAT payment for the provision of the electronic services. The electronic services of a foreign company or non-resident includes games, audio/video files, electronic documents, etc. that are supplied in an electronic format through an information and communication network, as well as cloud computing, advertising placement services, and intermediary services that include mediating activities of renting, using, consuming, supplying, or purchasing goods or services in Korea. If the foreign electronic services are supplied to Korean consumers through third parties such as electronic marketplaces or intermediaries who transmit payment from the purchaser to the seller, the third party must register and account for the VAT.
Customs duties are generally assessed on imported goods. ‘Importation’ refers to the delivery of goods into Korea (in case of goods passing through a bonded area, delivery of such goods into Korea from such a bonded area) to be consumed or to be used in Korea.
An annual property tax, as a local tax, ranging from 0.07% to 5% is charged on the statutory value of land, buildings, houses, vessels, and aircraft. Five times the property tax rate is applied to factories that are newly constructed or expanded in a designated metropolitan area for the first five years.
Comprehensive real estate holding tax
A comprehensive real estate holding tax, as a national tax, ranging from 0.5% to 3.2% is charged on a certain excessive aggregated statutory value of land and houses. It is levied annually based on the date of 1 June.
Securities transaction tax
Securities transaction tax (at the rate of 0.43% for unlisted shares or interest) is imposed on the transfer of shares or interest, but the government is authorised to adjust the tax rate in certain circumstances. The flexible tax rate prescribed by the Presidential Decree is 0.23% (including agriculture and fishery surtax) for shares traded on the Korea Stock Exchange, 0.23% for shares traded on the Korean Securities Dealers Automated Quotations (KOSDAQ), and 0.1% for shares traded on the Korea New Exchange (KONEX).
Acquisition tax is charged on the price of real estate, motor vehicles, construction equipment, golf membership, boats, etc. The acquisition tax rate varies depending on the type of assets subject to the tax, ranging from 1% to 7%. A weighted rate is charged on acquisitions in a designated metropolitan area or on acquisition of luxury items, such as villas, golf courses, and yachts. A 12% acquisition tax rate shall be applicable to the acquisition of residential house by a corporation.
In principle, registration tax is included in the acquisition tax. However, in some cases, a separate registration tax ranging from 0.2% to 5% is charged upon the act of registering the creation, alteration, or lapse of property rights or other titles and incorporation with the concerned authorities. Registration tax upon the registration of title or right and incorporation for corporations located in a designated metropolitan area may be subject to three times the normal rate of 0.4%.
Stamp tax is levied on a person who prepares a document certifying establishment, transfer, or change of rights to property in Korea. The stamp tax ranges from KRW 50 to KRW 350,000, depending on the type of taxable document. The electronic stamp system has been implemented to make it mandatory to use stamps bought online rather than paper stamps bought in banks or post offices.
Gift tax is imposed on a person who acquires any property or value increase by gift. If CIT or individual income tax is imposed on the gifted property, however, the gift tax shall not be imposed. Gift tax ranges from 10% on not more than KRW 100 million in tax base to the top marginal tax rate of 50%.
Inheritance tax is imposed upon a person who acquires property through inheritance or bequest. However, an inheritor that is a non-profit company shall be exempt from the inheritance tax. Inheritance tax rates are the same as those for gift tax.
Employers are required to withhold income taxes at source on a monthly basis, finalise their employees' tax liability, and file the final tax settlement receipt with the tax authorities no later than the tenth day of March of the following year.
Social security contributions
There are four types of social security contributions in Korea, namely national pension, national health insurance, employment insurance, and worker’s accident compensation insurance. For the first three types of social security taxes (i.e. national pension, national health insurance, and employment insurance), employees and employers jointly bear 9.13% and 9.38% (or up to 9.98% depending on headcounts) of salaries, respectively. Meanwhile, the worker's accident compensation insurance is borne by employers only, which varies by industry, ranging from 0.7% (banking, insurance) to 18.6% (coal mining) of salaries.