Korea, Republic of
In Korea, the taxable year is on a fiscal-year basis as elected by the taxpayer. However, it cannot exceed 12 months.
A corporation must file an interim tax return with due payment for the first six months of the fiscal year, and the filing/payment must be made within two months after the end of the interim six-month period.
A corporation must file an annual tax return with due payment for the fiscal year, and the filing/payment must be made within three months (four months for the consolidated tax return) from the end of the fiscal year. In case the external audit is not completed and the financial statements are not fixed, a corporation can request for extension of tax filing by one month with delinquent interest of 2.9% per annum (effective from 20 March 2023).
Payment of tax
Where the tax amount to be paid by a resident corporation exceeds KRW 10 million but is KRW 20 million or less, the excess over KRW 10 million may be paid in instalments within one month of the date of the expiration of the payment period (two months for SMEs).
Where the tax amount to be paid exceeds KRW 20 million, 50% or less of the tax amount may be paid in instalments.
In instances where the taxpayer adopts to use a foreign currency as its functional currency according to K-GAAP or K-IFRS, there are three ways to calculate the CIT base: (i) calculate the tax base using the financial statements in functional currency and translate it into KRW based on either the announced foreign exchange rate as of a year-end or average foreign exchange rates for a year; (ii) prepare the financial statements in KRW (as if the taxpayer does not use a foreign currency as its functional currency) and calculate the tax base; or (iii) compute the tax base in Korean won based on the balance sheet converted into Korean won based on the announced foreign exchange rate as of a year-end and income statement converted into Korean won based on the announced foreign exchange rates as of each transaction date. Once elected, the same method must be consistently used.
Tax audit process
There are two main categories of tax audits, periodic (regular) and non-periodic (special) tax audits. Periodic audit is conducted to verify compliance with tax obligations where an alleged non-compliance is found as a result of the tax compliance measurement analysis, where the random selection of sample items to be verified is used and where a company has not been subject to any tax audit for the last four years (i.e. period of audit cycle) or longer. Non-periodic audit is conducted where a taxpayer does not comply with tax compliance obligations under tax laws, where transactional facts are not in line with what was reported (e.g. transactions without authentic documentation, disguised or fictitious transactions), where concrete information on its tax evasion is reported, and where an obvious evidence of omission or error is found from the submitted documentation.
In case of a periodic audit, an official notification of an intended tax audit must be made 15 days prior to the audit. The notification must be given in writing with prescribed details, including tax items and period subject to audit and reason for examination.
Statute of limitations for national tax assessment
The statute of limitations is generally five years from the statutory filing due date of the annual CIT return but is extended to seven years in case of ‘cross-border’ transactions when a party or parties to the transaction include(s) non-resident(s) or foreign corporation(s) (excluding domestic business places of non-resident(s) or foreign corporation(s)). However, the statute of limitations is extended further in the following cases:
- Seven years if a taxpayer does not file its tax base by the statutory due date (ten years involving cross-border transactions).
- Ten years if a taxpayer evades taxes by fraud or unjustifiable means (15 years involving cross-border transactions).
Statute of limitation for collection of unpaid national taxes
The statute of limitation for the tax authorities’ collection of national taxes is five years (ten years for national tax payable worth KRW 500 million or more) from the date (e.g. tax return filing due in case of a self-assessed tax like CIT) on which the government’s right to collect a national tax becomes exercisable.
Topics of focus for tax authorities
The recent topics of focus for tax authorities are as follows:
- Implementation of new tax information reporting systems as planned in the BEPS project.
- Increased tax audit on tax avoidance through internal transactions (including artificial avoidance of PE status) or gifts among group companies and major shareholders.
- Focused audits aimed at booming or emerging industries and new forms of tax evasion schemes based on online platforms.
- Increased scrutiny over the prevention of offshore tax evasion through a cross-border tax information exchange program.
- Selection of tax audit targets through a sophisticated analysis and verification system by adding new measures, including accounting transparency such as auditor's opinion, hours spent for external audit, etc.
- Increased application of forensic and electronic audit schemes and use of big data analysis to examine potential tax avoidance.