Korea, Republic of

Resident corporations are taxed at normal CIT rates on their worldwide income, whereas non-resident corporations with a permanent establishment (PE) in Korea are taxed at normal CIT rates only to the extent of their Korean-source income. Non-resident corporations without a PE in Korea are generally taxed through a withholding tax (WHT) on each separate item of Korean-source income (see the Withholding taxes section).

The following tax table summarises the CIT rates applicable for the fiscal year starting on or after 1 January 2023:

* Korean won

** Excluding the local income tax.

Additional tax on corporate income

To facilitate the use of corporate retained earnings to fund facility investment and payroll increases, 20% additional tax shall be applied for excess corporate earnings reserve of a company (excluding SMEs, etc.) by 31 December 2025. Companies should elect one of the following methods in computing excess corporate earnings reserve subject to the additional tax:

• ([adjusted taxable income for the year x 70%] - the total amount of facility investment, wage increases, and expenditures for mutual growth of large corporations and SMEs) x 20%, or
• ([adjusted taxable income for the year x 15%] - the total amount of wage increases and mutual growth expenditures) x 20%.

The rule for 20% additional tax was scheduled to sunset at the end of December 2022, although a company having untaxed excess corporate earnings reserve carried over from prior years from 2021 and 2022 shall be subject to additional tax in a current year according to the former rule if qualifying expenditures, such as facility investment, salary increase, etc., in a current year is less than the prior year’s excess corporate earnings reserve. The sunset date has been extended by an additional three years until 31 December 2025. In extending the sunset, the application of the additional tax has been refined to only include those within a conglomerate group that are subject to restrictions on cross-shareholdings as specified in the Anti-Monopoly and Fair Trade Act.

Special Tax for Rural Development

When a corporate taxpayer claims certain tax credits or exemptions under the Special Tax Treatment Control Law (STTCL), a 20% agriculture and fishery surtax is levied on the reduced CIT liability. The application period has been extended for ten years to 30 June 2034.

Minimum tax

Corporate taxpayers (except SMEs) are liable for the minimum tax, which is defined as the greater of 10% (if the tax base is KRW 10 billion or less, 12% on the tax base exceeding KRW 10 billion but not more than KRW 100 billion, 17% on the tax base exceeding KRW 100 billion) of the taxable income before certain tax deductions and credits pursuant to the STTCL or the actual CIT liability after certain deductions and credits under the STTCL.

For SMEs, the minimum tax is the greater of 7% of taxable income before certain tax deductions and credits or actual CIT liability after the deductions and credits. For the companies that are disqualified from SMEs due to specific reasons, the applicable rates are 7% during the first four years after ceasing to qualify, 8% for the next three years, and 9% for the subsequent two years.

New rules for global minimum tax

Korea has introduced new rules for global minimum tax (‘GloBE Rules‘ or ’Rules‘) at the end of December 2022. The Rules include an ‘Income Inclusion Rule’ (IIR) and ‘Supplementary Rule for Income Inclusion’ (referred to as the UTPR). Based on the current tax law, the IIR is effective for fiscal years beginning on or after 1 January 2024 while the UTPR will be effective for fiscal years starting on or after 1 January 2025. The Rules apply to all constituent entities of a qualified multinational enterprise (MNE) group with annual consolidated revenues of 750 million euros (EUR) or more in at least two of the four fiscal years immediately preceding the tested fiscal year. The Rules shall not apply to entities that are excluded entities, which refer to a government entity, an international organisation, a non-profit organisation, a pension fund, an investment fund that is an ultimate parent entity, and a real estate investment vehicle that is an ultimate parent entity. In addition, the rules shall not apply to an entity that is directly or indirectly owned by an excluded entity.

The effective tax rate is calculated by dividing the adjusted covered taxes incurred by the net global anti-base erosion (GloBE) income for all of the MNEs’ constituent entities that are located in the same jurisdiction (i.e. jurisdictional blending). If the effective tax rate is lower than 15% in a given jurisdiction, an additional top-up tax for the jurisdiction for the fiscal year is calculated in accordance with the prescribed formula and paid by other constituent entities within the group under the relevant law. Filing a tax return and payment shall be due 15 months from the end date of the tested fiscal year. However, for the first year, the due date extends to 18 months from the end date of the tested fiscal year.

Local income tax

The local income tax is a separate income tax that has its own tax base, tax exemption and credits, and tax rates. The local income tax rates for corporations are 0.9% on the first KRW 200 million, 1.9% for the tax base between KRW 200 million and KRW 20 billion, 2.1% for the tax base between KRW 20 billion and KRW 300 billion, and 2.4% for the excess.