1. Introduction
Corporate tax, also known as corporate income tax, is a tax imposed on the income earned by a legal entity. It applies to both legal entities and certain entities that are recognized as legal entities for tax purposes.
2. Corporate Taxpayers
There are two types of corporate taxpayers:
domestic legal entities and foreign legal entities with income sourced in
Korea. Domestic legal entities are considered unlimited taxpayers, meaning they
are liable for tax on their worldwide income. On the other hand, foreign legal
entities are classified as limited taxpayers and are only required to pay tax
on income derived from sources within Korea.
A domestic legal entity is defined as a legal entity that has its headquarters, principal office, or substantive management location in Korea. Conversely, a foreign legal entity is a legal entity whose headquarters or principal office is located in a foreign country, as long as the substantive management of its business is not based in Korea.
3. Income Categories
The income subject to corporate tax for domestic legal entities can be categorized, among other things, as follows:
(i) Business Income: The taxable income of a domestic legal entity is determined based on the profits generated from transactions that contribute to the net asset growth of the legal entity, as per the net worth increase theory. According to this theory, if a legal entity's net worth has increased during a specific tax period, it is assumed that they have received taxable income, regardless of the source of that income;
(ii) Liquidation Income: When a legal entity undergoes dissolution, the liquidation income refers to the value of the remaining assets after subtracting the total amount of its capital and retained earnings; and,
(iii) Income from Transfer: If a legal entity
transfers non-business land or other assets, the law mandates that capital
gains tax be paid in addition to the regular corporate tax applicable for each
business year.
Corporate Tax Rate (2025)
|
Taxable Income (KRW) |
Marginal Tax Rate |
|
200 million or lower |
9% |
|
From
over 200 million to 20 billion |
19% |
|
From
over 20 billion to 300 billion |
21% |
|
Over 300 billion |
24% |
4. Local Income Tax
There is an additional tax, known as the local
income tax, imposed on corporate income. This local income tax is calculated as
10% of the corporate tax rate. In other words, if the corporate tax rate is,
for example, 21%, then the local income tax on corporate income would be 10% of
that rate, which would be 2.1%. Therefore, the total tax rate for corporate
income, considering both the corporate tax and the local income tax, would be 23.1%.
