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KoreaTax Profile

Produced in conjunction with the KPMG Asia Pacific Tax Centre

Updated: February !"#

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Contents

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Corporate (nco)e Tax

(nco)e Tax Treaties for the A*oidance of +ouble Taxation

(ndirect Tax

Personal taxation

,ther Taxes

Free Trade A-ree)ents

Tax Authority

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. !"# KPMG (nternational Cooperati*e /0KPMG (nternational123 a 4wiss entity5 Me)ber fir)s of the KPMG networ6 of independent fir)s are affiliated with KPMG

(nternational5 KPMG (nternational pro*ides no client ser*ices5 7o )e)ber fir) has any authority to obli-ate or bind KPMG (nternational or any other )e)ber fir) *is898*is third

parties3 nor does KPMG (nternational ha*e any such authority to obli-ate or bind any )e)ber fir)5 All ri-hts reser*ed "

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Tax ate


Corporate inco)e tax

The basic Korean corporate tax rates /includin- a local surtax of "! percent of the corporate inco)e tax due2 are currently:

"" percent on the first K; !! )illion of the tax base

percent up to K; ! billion

$5 percent for a)ounts abo*e K; ! billion


esidence A corporation is considered to be resident in Korea if the corporation has its head or )ain office3 or place of effecti*e)ana-e)ent in Korea5 A resident corporation is liable in Korea for corporate inco)e tax on its worldwide inco)e5

A non8resident corporation is liable for corporate inco)e tax on inco)e fro) Korean sources only5

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(nternational ;ithholdin- Taxates

+i*idends paid to a non8resident are subject to withholdin- tax of percent unless the withholdin- tax rate is reducedby a tax treaty between Korea and the other contractin- state5

oyalties paid to a non8resident are subject to withholdin- tax of percent /or 5 percent on inco)e arisin- fro) rentalof industrial3 co))ercial or scientific e=uip)ent23 unless the withholdin- tax rate is reduced by a tax treaty betweenKorea and the other contractin- state5

(nterest paid to a non8resident is subject to withholdin- tax of percent /or "%5$ percent for interest on bonds issued bythe 4tate3 local -o*ern)ent and a do)estic corporation23 unless the withholdin- tax rate is reduced by a tax treatybetween Korea and the other contractin- state5

Pay)ents for personal ser*ices or other inco)e paid to a non8resident are subject to withholdin- tax of percent unlessthe withholdin- tax rate is reduced by a tax treaty between Korea and the other contractin- state5

(nco)e or -ains deri*ed by a non8resident fro) the transfer of real property3 or transfer of shares of a corporation that issubstantially a real estate holdin- corporation situated in Korea3 are subject to withholdin- tax at the lesser of:

"" percent of total *alue of the transferred property3 or

percent of the -ains reali>ed on the transfer5

This is the case unless the withholdin- tax rate is reduced by a tax treaty between Korea and the other contractin- state5

(nco)e or -ains deri*ed by a non8resident fro) the transfer of shares of a Korean corporation are subject to withholdin-tax at the lesser of:

"" percent of total *alue of the transferred property3 or

percent of the -ains reali>ed on the transfer5

This is the case unless the withholdin- tax rate is reduced by a tax treaty between Korea and the other contractin- state5

?*ery tax rate specified abo*e includes ten percent of local inco)e tax3 which is taxed on corporate tax and local inco)e

tax5


(nternational5 KPMG (nternational pro*ides no client ser*ices5 7o )e)ber fir) has any authority to obli-ate or bind KPMG (nternational or any other )e)ber fir) *is898*is thirdparties3 nor does KPMG (nternational ha*e any such authority to obli-ate or bind any )e)ber fir)5 All ri-hts reser*ed

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Transfer of shares 4ecurities Transaction Tax

4ecurities Transaction Tax /4TT2 is i)posed on transactions in*ol*in- transfer of stoc6s as follows:

Transfer of shares issued by Korean entities5

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Transfer of shares /continued2 Ac=uisition Tax

7o ac=uisition tax will be le*ied -enerally on transfers of shares5 An exception to this rule will apply if the co)pany/pri*ate co)pany2 has certain statute8defined underlyin- assets /e5-5 land3 buildin-s3 structures3 *ehicles3 certaine=uip)ent3 and *arious )e)berships2 that are subject to ac=uisition tax5 (f the in*estor and its affiliates collecti*elyac=uire3 in a--re-ate3 )ore than %! percent of the shares in the tar-et co)pany3 they will be 0dee)ed1 to ha*eindirectly ac=uired those taxable properties throu-h the share ac=uisition3 and will therefore be subject to ac=uisition taxat a rate of either two percent or 5 percent based on the asset type5

Transfer of assets Capital Gains Tax

(n case of indi*iduals3 the capital -ains tax rate on the disposal of land and buildin-s *aries fro) "! percent to '! percentdependin- on the holdin- period and type of property5

Ac=uisition Tax

Ac=uisition tax shall be i)posed on a person who has ac=uired certain property or ri-hts5 Tax rates depend on theproperty ac=uired and ac=uisition )ethods5

CFC rules (n the case where "! percent or )ore of the issued shares in a forei-n co)pany are owned by a Korean resident3 and thea*era-e effecti*e inco)e tax rate of the forei-n co)pany for the )ost recent three consecuti*e years is "% percent orless3 the Korean resident is dee)ed to ha*e recei*ed a di*idend of an a)ount e=ual to @dee)ed distributable retainedearnin-s@ )ultiplied by the shareholdin- ratio /e*en if there has been no actual distribution of such retained earnin-s tothe Korean resident25

The dee)ed di*idend a)ount is the total distributable retained earnin-s3 adjusted by ite)s such as pre*ious dee)eddi*idend a)ounts /taxable to the Korean parent co)pany23 )andatory reser*es3 and -ainEloss on share *aluation5 TheCFC inco)e will be included in the taxable inco)e of the Korean parent co)pany in the tax year to which the &!th dayafter the CFCs fiscal year end belon-s5



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Transfer Pricin- Transactions with non8resident related parties

Under Korean tax law3 the tax authority has the ability to adjust a transfer price and recalculate a residentIs taxableinco)e when the transfer price used between a Korean co)pany and its forei-n related8party differs fro) the ar)Islen-th price5 The ar)Is len-th price should be deter)ined by the )ost reasonable )ethod applicable to the situation5

A taxpayer is re=uired to sub)it a su))ary inco)e state)ent for forei-n related party transactions to the tax authority

alon-side its annual tax return5 (n addition3 the tax authority )ay re=uest supportin- docu)entation for related partytransactions5

A resident )ay file an application with the 7ational Tax 4er*ice /7T42 for appro*al to use a transfer pricin- )ethod /TPM2for a particular period5 The application should be )ade no later than the last day of the first taxable year for that period5The 7T4 )ay -rant appro*al for the TPM when a resident a-rees with the co)petent authority of the contractin- 4tatethrou-h )utual a-ree)ent procedures5 esidents )ay also choose to sub)it an APA /Ad*anced Pricin- A-ree)ent23 ifdeter)ined necessary5

Transactions with do)estic related parties

Taxin- authorities )ay assu)e that the all prices used in related party transactions are )ar6et price and recalculate theprofits based on the )ar6et prices5 (n cases where a taxpayer has unri-htfully decreased or transferred its profit to a

related party by transactin- the -oods3 ser*ices or capital at below or abo*e the )ar6et price3 the taxin- authorities wouldi)pose the rele*ant taxes based on )ar6et prices5

Thin Capitalisation (n the case where a Korean co)pany borrows fro) its forei-n controllin- shareholders an a)ount -reater than threeti)es its e=uity /#:" debt to e=uity ratio in -eneral or &:" in the case of financial institutions23 interest payable on theexcess portion of the borrowin- is characterised as a di*idend5 The article on di*idends in a rele*ant tax treaty /if any2applies5

Korean tax law contains a substance o*er for) rule that allows the tax authority to re8characterise a transaction based onits substance5

;here the tax burden of a co)pany has been unjustly reduced throu-h transactions with related parties3 the taxauthorities )ay recalculate the inco)e a)ount of the concerned co)pany based on the fair )ar6et *alue that would

ha*e been established between independent co)panies en-a-ed in si)ilar transactions under co)parablecircu)stances5

General Anti8a*oidance



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Anti8treaty shoppin- To resol*e treaty shoppin- proble)s3 the Korean -o*ern)ent has tried to re8ne-otiate with se*eral countries that ha*e atax treaty with Korea5 The tax treaty with Austria /in !""2 and the tax treaty with 4wit>erland /in !"2 ha*e beenrene-otiated /4ource: Press releases of Ministry of 4trate-y and Finance25

7one5,ther specific anti8a*oidancerules

ulin-s There are two types of rulin-s a*ailable letter rulin-s and ad*anced rulin-s5

Better ulin-: A process where the 7ational Tax 4er*ice /7T42 responds by letter to an en=uiry )ade /by a taxpayer2re-ardin- their interpretation on a section of the (nco)e Tax Act5 The letter rulin-s are )ade publicly a*ailable on the 7T4website5

Ad*ance ulin-: An ad*ance inco)e tax rulin- is a written state)ent -i*en by the 7T4 to a taxpayer statin- how the 7T4will interpret and apply specific pro*isions of existin- inco)e tax law to a definite transaction or transactions which thetaxpayer is conte)platin-5 Full disclosure by the taxpayer is re=uired as part of the process5 Ad*ance rulin-s are )adepublicly a*ailable on the 7T4 website5

L+ (ncenti*es arious types of tax credits and exe)ptions are a*ailable to sti)ulate L+ acti*ities includin-:

Tax credits for research and hu)an resources de*elop)ent expenses

4pecial taxation for contributions to research and de*elop)ent

Tax credits for in*est)ent in facilities for research and )anpower de*elop)ent

4pecial taxation for ac=uisition cost of technolo-y

eduction of or exe)ption fro) corporate tax /e5-5 for hi-h8tech enterprises )o*in- to special research andde*elop)ent >ones2

,ther incenti*es Korea has tax incenti*es ai)ed at attractin- in*est)ent fro) abroad includin-:

Tax reduction and exe)ption fro) corporate inco)e tax3 ac=uisition tax3 and property tax

?xe)ption fro) custo)s duties and *alue added tax

?xe)ption fro) tax on technical license royalties



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(n Force

(nco)e Tax Treaties for the A*oidance of +ouble Taxation

Albania

Al-eria

Australia

Austria

A>erbaijan

an-ladesh

elarus

el-iu)

ra>il

ul-aria

Canada

Chile

China

Croatia

C>ech epublic

Coo6 islands

+en)ar6

?-ypt

?stonia

Fiji

Finland

France

Ger)any

Greece

a6hstan

Kuwait

Baos

Bat*ia

Bithuania

Buxe)bour-

Malaysia

Marshall islands

Malta

Mexico

Mon-olia

Morocco

Myan)ar

7epal

7etherlands

7ew Qealand

7orway

,)an

Pa6istan

Pana)a

Papua 7ew Guinea

Philippines

Poland

Portu-al

Jatar

o)ania

ussia

4audi Arabia

4in-apore

4lo*a6 epublic

4lo*enia

4outh Africa

4pain

4ri Ban6a

4weden

4wit>erland

Thailand

Tunisia

Tur6ey

U6raine

United Arab ?)irates

United Kin-do)

United 4tates

Uru-uay

U>be6istan

ene>uela

ietna)



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7e-otiated3 not yet in force atti)e of publication

7ew treaties and protocols ha*e been ne-otiated with ahrain3 Colo)bia3 Peru3 and 4udan3 but at the ti)e of writin- arenot yet in force5

4ource: Ministry of 4trate-y and Finance



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# (ndirect Tax

alue Added Tax /AT2

The standard rate of AT is "! percent5

?xports are >ero8rated and certain ite)s are AT8exe)pt5

(ndirect Tax

4tandard ate

Further infor)ation For )ore detailed indirect tax infor)ation3 refer to:

KPMGs ATEG4T ?ssentials



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$ Personal taxation

A resident is liable to tax on all taxable inco)e fro) do)estic and forei-n sources3 and a non8resident is liable to tax onKorean sourced inco)e only5

The top personal tax rate in Korea is $"5D percent /includin- a local surtax of "! percent of the personal inco)e tax due23and this rate applies to taxable inco)e in excess of K; #!!)illion5

KoreaIs social security syste) co)prises four plans:

7ational pension plan in which the contribution of nine percent is split e=ually between the e)ployer and e)ployee

7ational health insurance in which the contribution of %5D percent is shared e=ually between the e)ployer ande)ployee

(ndustrial accident co)pensation insurance in which the entire contribution of !5' percent to #%5$ percent/dependin- on the e)ployerIs industry2 is borne by the e)ployer

?)ploy)ent insurance which is split between Hune)ploy)entI /of which the contribution of "5" percent is shared

e=ually between the e)ployer and e)ployee23 and He)ployee ability de*elop)ent pre)iu)I /of !5% percent to !5D%percent which is borne entirely by the e)ployer25

(nco)e Tax

Top ate

4ocial 4ecurity

Further infor)ation For )ore detailed personal taxation infor)ation3 refer to:

KPMGIs Thin6in- eyond orders



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% ,ther Taxes

ranch tax of ! percent / percent inclusi*e of the "! percent resident surtax2 of the adjusted taxable inco)e of aKorean branch of a forei-n corporation is payable5

This rate )ay be reduced under a tax treaty and certain tax treaties pro*ide co)plete relief fro) branch tax5

ranch tax

Custo)s duty

4ta)p duty

Goods i)ported into Korea are subject to custo)s duty5 The a)ount of duty depends on the =uantity and *alue of the-oods i)ported5

4ta)p duty is le*ied on a-ree)ents in relation to the creation3 transfer3 or alteration of ri-hts in respect of assets5 (f )orethan two parties enter into an a-ree)ent3 the parties are jointly liable for the sta)p duty5

The a)ount of sta)p duty i)posed on each ori-inal docu)ent *aries between K; "!! and K; #%!3!!!5

Ac=uisition tax

Capital duty

(nheritance tax

Gift duty

Ac=uisition tax is i)posed on a person who has ac=uired *arious assets or ri-hts5 Tax rates depend on the ite)s to beac=uired and ac=uisition )ethod5

A capital re-istration tax of !5$D percent includin- the local surtax is le*ied on the paid8in capital increase5 (f the co)panyis incorporated in the 4eoul Metropolitan area3 it triples to "5$$ percent5

Property ac=uired throu-h inheritance or be=uest is liable to inheritance tax5

A donee is liable to pay -ift tax on all -ifted property5



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(n force

Free Trade A-ree)ents

Chile

?uropean Union

A4?A7 8

runei +arussala)

Ca)bodia

(ndonesia

Bao

Malaysia

Myan)ar

Philippines

4in-apore

Thailand

ietna)

(ndia

Peru

4in-apore United 4tates

?FTA Korea Free Trade A-ree)ent 8

(celand

Concluded E si-ned /pendin-do)estic ratification2

(n ne-otiation

Colo)bia

Austria

Canada

Biechtenstein

Tur6ey

China

China apan 8 Korea

(ndonesia

7ew Qealand

ietna)

7orway 4wit>erland

e-ional Co)prehensi*e ?cono)ic Partnership

A4?A7

Australia

China

(ndia

apan

Korea

7ew Qealand

4ource: Ministry of Forei-n Affairs and Trade



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' Tax Authority

7ational Tax 4er*ice /7T42

Bin6 to 7ational Tax 4er*ice

7T4 conducts periodic audits at a fixed four year inter*als for lar-e enterprises /whose annual re*enue is K; %!! billionor )ore23 and fi*e year /or lon-er2 inter*als for s)all and )ediu) enterprises5

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Appeals e*iew syste) of the le-ality before taxation /before tax notice2

A taxpayer )ay file an objection to the tax re*iew results or inco)e tax assess)ent within #! days fro) the date ofreceipt of the notice5 Upon receipt of objection3 the Tax Co))ission will deliberate3 and the Co))issioner shall notifythe result to the taxpayer within #! days5

Tax appeal /after tax notice2

4tep ": There are four re)edies a*ailable before filin- an ad)inistrati*e liti-ation as follows:

,bjection: to be filed with the +istrict Tax ,ffice or a co))issioner of the re-ional 7T4

Appeal for re*iew: to be filed with the 7T4

Appeal to Tax Tribunal: to be filed with the Tax Tribunal of the Pri)e MinisterIs office

Appeal for re*iew by the oard of Audit and (nspection: to be filed to the oard of Audit and (nspection

The afore)entioned re)edies should be filed within ! days fro) the date of receipt of the notification or the date ataxpayer beco)es aware of the i)posed tax5 The or-anisation where the re)edy is filed shall notify the result to thetaxpayer within #! days for an objectionN ! days for an appeal for re*iew and appeal to tax tribunalN and three )onths foran appeal for re*iew by the oard of Audit and (nspection5

4tep : (f no re)edy results fro) 4tep "3 an ad)inistrati*e liti-ation can be filed3 and the rele*ant docu)ent shall besub)itted to the court within ! days fro) the date of receipt of the result5



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