Employees’ working conditions should be agreed upon by free will under equal employer-employee relations. Even if working conditions have been agreed upon by free will, any aspect of the working conditions that fails to meet the standards set by law shall not be legally effective.
2-1 Wages
Wages refer to money or other valuables paid to employees in exchange for their services, regardless of how they are called (wage, salary, bonus, etc.). Wages shall be paid at or above the minimum wage set by the Minister of Employment and Labor every year. The minimum wage for 2018 is set at KRW 7,530 per hour, and KRW 60,240 per day (8 hour workday).
The Labor Standards Act classifies wages into ordinary wage and average wage, and retirement payment and other allowances set by law are to be calculated based on one of these two wage categories. ‘Average wage’ refers to the total amount of wages paid to a worker during the three months prior to the event (e.g. retirement) necessitating the calculation of the average wage, divided by the total number of days during the same period. Average wage is used to calculate retirement payments, business suspension allowances, and industrial accident compensation. ‘Ordinary wage’
refers to wages by hour, day, week, or as otherwise outlined in an employment contract for certain work performed, or for the total number of working hours. Allowances for extended work, nighttime work, holiday work, annual paid leave, and advance notice of dismissal all fall into this category.
2-2 Working Hours
The standard working hours set by the Labor Standards Act are eight hours per day and 40 hours per week. The working hours prescribed by the Act should not be exceeded. If carried out by the order of the employer, work preparation hours, waiting hours, training hours and organizing hours outside the standard working hours shall all be counted as working hours.
Work beyond the standard working hours should be agreed upon by the employer and employee.
However, even when agreed upon by both parties, at least 50 percent of the ordinary wage should be paid in addition to the standard wages for extended work, nighttime work (22:00-06:00), or holiday work.
However, when a flexible work hour system is introduced based on the rules of employment (two-week unit) or a written agreement with the employee representative (three-month unit), the company
• Wages
• Working Hours
• Holidays and Leaves
• Dismissal
• Retirement Benefits
• Labor –Management Council
• Social Insurance Policy
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may have employees work in excess of eight hours a day or 40 hours a week within the extent that the average weekly work hours do not exceed 40 hours for a given period (two weeks or three months). The company is not required to pay overtime allowance for such work hours in excess of the given work hours per day or week. However, the weekly maximum number of work hours should not exceed 48 hours per week under a two week-based flexible work hour system. And, the weekly maximum number of work hours should not exceed 52 hours per week under a three month-based flexible work hour system. The maximum daily number of work hours should not exceed 12 hours.
Flexible work hours shall not be imposed upon pregnant women or minors.
Workers
Standard Working
Hours Extended Work Nighttime Work Holiday Work
1 Day 1 Week
Male workers 8 hours 40 hours 12 hours per week Allowed Allowed
Female
workers 8 hours 40 hours 12 hours per week As agreed by the person concerned
As agreed by the person concerned
workers 8 hours 40 hours Not applicable
•In principle: Not
6 hours 34 hours Not applicable -
-2-3 Holidays and Leaves
Generally, there are two types of holidays and leaves: “Legal” holidays and leaves, for which the details, conditions, and effects are decided by law, and “agreed” holidays and leaves, for which such matters are decided autonomously by management and labor. Legal holidays and leaves include weekly holidays, Labor Day, monthly leave, annual leave, menstruation leave, and maternity leave.
Agreed holidays and leaves may include public holidays, company foundation anniversaries, summer
leave, and congratulatory & condolence leave.
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Paid Weekly Holidays
An employer should give an average of one paid-leave day or more per week if an employee has worked for the prescribed number of consecutive working days. The weekly holiday does not have to be a Sunday. Where an employee works on a weekly holiday, 50/100 of the ordinary wage shall be paid in addition to the standard wages for the work performed on that day.
Annual Paid Leave
An employer shall provide workers who have come to work for more than 80 percent of one working year with 15 days of paid leave. For workers who have worked for three or more consecutive years, one more day of paid leave shall be provided for every two years of consecutive work after the initial year, up to a total of 25 days. Annual leave shall be granted upon the request of a worker, and the worker shall be paid an ordinary or average wage for the period of leave in accordance with the employment regulations. However, the employer may change the time of leave in cases where granting the leave at the requested time would cause a major disruption to business operations. If the days of leave expire and the worker does not take the leave despite the employer’s encouragement, the employer shall not be obligated to compensate the worker for the unused leave.
Paid Maternity Leave
Pregnant workers shall be given 90 days of maternity leave before and after childbirth, with 45 days or more to be allocated after childbirth. Wages for the first 60 days of the period of leave are to be paid by the employer, and wages for the remaining 30 days are covered by employment insurance (the government). In cases where a business is eligible for preferential support (Article 12 of the Enforcement Decree of the Employment Insurance Act), wages for the 90 days shall be covered entirely by employment insurance.
2-4 Dismissal
An employer cannot dismiss, lay off, suspend or transfer a worker, reduce a worker’s wages, or take punitive measures against a worker without justifiable cause. Such punitive measures shall be taken on reasonable grounds that are generally accepted by society at large. In general, the reasons for punitive measures such as dismissal are stipulated in the employment regulations or the collective agreement, and the procedures set forth in the concerned employment regulations or collective agreement shall be followed. When dismissing a worker, the worker shall receive notice of the dismissal at least 30 days prior to actual dismissal. If not, the employer shall be obligated to pay at least 30 days’ worth of advance notice of dismissal pay. Dismissal of an employee is effective only when a written notice stating the cause and date of dismissal is sent to the employee concerned.
2-5 Retirement Benefits
In order to pay retirement benefits to retiring workers, the employer shall choose from either the
retirement allowance system or the retirement pension plan. In choosing the retirement benefit
scheme or changing the chosen retirement benefit scheme to another type, the employer shall obtain
the consent of the majority of the labor union if a labor union consisting of the majority of workers
exists, or the majority of workers if a labor union does not exist.
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Retirement Allowance System
The employer should pay the average wage for 30 days or more per year of continuous service period as retirement allowance when an employee dies or retires. The employer may pay retirement allowance prior to an employee’s retirement for the continuous service period by computing the retirement allowance for the served period when the employer requests such early payment of retirement allowance for a cause provided under the Act on the Guarantee of Employee Retirement Payments, including the purchase of a home, recuperation of six or more months from a disease or injury of the employee or his/her dependents, declaration of bankruptcy, and a pay decrease under the peak wage system.
Retirement Pension Plan
To guarantee workers’ financial stability after retirement, the employer shall accumulate and invest funds for the retirement allowance into an external financial institution during the workers’ service period. Retirement allowance shall be paid to the workers as a pension or in lump sum.
※ Types of retirement pension policies
•Defined Benefit Retirement Pension (DB)
The retirement benefit is pre-fixed based on the length of service and average wage. The amount of the employer’s burden (accumulation) changes according to the investment results of the accumulated funds.
•Defined Contribution Retirement Pension (DC)
The worker determines the investment method of the accumulated funds, and the amount of retirement pension changes according to the investment results of the accumulated funds. The employer shall pay 1/12 of the worker’s wage into the worker’s personal account every year.
2-6 Labor-Management Council
The labor-management council is a consultative committee created for the purpose of promoting the participation and cooperation of all employers and workers to improve the welfare of workers and the sound development of companies. A business or workplace with 30 or more workers should establish a labor-management council that consists of an equal number of representatives from management and labor (3-10 persons from each side). The labor-management council shall handle all matters for discussion, resolution, and reporting depending on the resolution and performance obligations.
2-7 Social Insurance Policy Employment Insurance
Employment insurance is a social insurance policy that has been introduced in order to provide
livelihood support for unemployed workers, to prevent layoffs due to industrial restructuring, and to
promote re-employment, while providing employers with various types of support to strengthen
their corporate competitiveness. Businesses and workplaces with one or more regular workers are
obligated to subscribe to employment insurance.
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※ Businesses exempted from mandatory subscription to employment insurance
•An agricultural business, a forestry business, a fishery business or a hunting business run by any person, other than a juristic person, with not more than four full-time employees
•Housekeeping services
•A project for which the total construction costs are less than KRW 20 million; a project for construction of a building with a total floor area of 100 m2 or less or substantial repair of a building with a total floor area of 200 ㎡ or less
Industrial Accident Compensation Insurance
Industrial Accident Compensation Insurance is a social insurance policy that requires the government to take responsibility on behalf of employers for compensating workers for injuries or illnesses acquired at work, in accordance with the Labor Standards Act. Accordingly, employers subject to industrial accident compensation insurance are exempted from the individual compensation responsibilities towards workers by paying a premium. The government shall pay direct compensation to the workers from the funds created by employer-paid premiums. Businesses and workplaces with one or more regular workers are obligated to subscribe to the industrial accident compensation insurance. In the case that an employee of a business subject to industrial accident compensation acquires an injury or illness that requires four or more days of medical care or dies, insurance is paid out on the request of the employee (or his/her surviving family members).
※ Businesses exempted from mandatory subscription to industrial accident compensation insurance
•An agricultural business, a forestry business, a fishery business or a hunting business run by any person, other than a juristic person, with less than five full-time employees
•Employment activities within households
•A project for which the total construction costs are less than KRW 20 million; a project for construction of a building with a total floor area of 100 m2 or less or substantial repair of a building with a total floor area of 200 ㎡ or less
•Businesses for which accident compensation is covered under the Public Officials Pension Act and the Military Pension Act
•Businesses for which accident compensation is covered under the Seafarers Act, Act on Accident Compensation Insurance for Fishing Vessels and Their Crew Members, Pension for Private School Teachers and Staff Act
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< Four Key Social Insurance Programs >
Insurance Program Employment Insurance
Effective as of July 1995 July 1964 January 1988 July 1977
Applicable
businesses At least 1 full-time worker At least 1 full-time worker
Employee 0.65% of the total wage
(Unemployment benefit) None 4.5% of standard
monthly wage
3.060% of standard monthly wage
Employer
- Unemployment benefit:
0.65%
- Employment stabilization project + occupational
Governing authority Ministry of Employment and Labor
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1. Taxation
Taxation is the system by which the central government or local governments impose taxes on people who bear tax obligations without providing an offsetting benefit in order to raise revenues. There are 16 national taxes and 11 local taxes in Korea.
1-1 Taxation System of the Republic of Korea
Korea’s taxation system has supported the fiscal policies for achieving the central or local governments’ economic development plans. As of July 2017, the system largely consists of national tax and local tax as follows.
1-2 Tax System of the Republic of Korea
•Income tax
•Corporate tax
•Inheritance tax
•Gift tax
•Gross real estate tax
•Value added tax
•Special excise tax
•Liquor tax
•Transportation, energy, and environmental tax
•Stamp tax
•Securities transaction tax
•Education tax
•Special tax for agricultural and fishing villages
•Customs duty
•Acquisition tax
•Registration and license tax
•Leisure tax
•Tobacco consumption tax
•Local consumption tax
•Resident tax
•Local income tax
•Property tax
•Automobiles tax
•Regional resources facilities tax
•Local educational tax Internal Tax
National tax
Local tax
Customs duty Tax
• Taxation System of the Republic of Korea
• Tax System of the Republic of Korea
Taxation
03
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2. National Tax
National taxes are collected by the National Tax Service (tax office) and the Korea Customs Service (customs office) to finance the central government. National tax is largely divided into internal taxes and customs duty. There are direct taxes and indirect taxes, depending on how the tax is paid. A direct tax refers to tax collected directly from the taxpayer, while an indirect tax refers to tax collected by an intermediary from the person who bears the ultimate economic burden of the tax. Direct taxes include income tax, corporate tax, inheritance tax, and gift tax. Indirect taxes include value added tax, special excise tax, liquor tax, and securities transaction tax.
※ Since the tax base and tax rate of national taxes are subject to frequent change, it is advised to consult the National Tax Service or check the related tax laws and regulations for accurate information.
2-1 Income Tax
The Income Tax Act categorizes taxable income into global income, retirement income, and transfer income. The taxation system is as follows.
Global Income
Global income is the sum of interest income, dividend income, business income (including real estate rental income), wage and salary income, pension income, and other income. The tax base for global income is calculated by deducting necessary expenses, income deductions, etc. from global income, and a tax rate of 6-40 percent is applied. Global income tax return filing is exempted for interest income, dividend income, other income separately taxed at the source, and wage and salary income exempt from income tax burden due to year-end tax settlement.
< Basic Tax Rate on Global Income >
Tax Base Tax Rate
Not more than KRW 12 million 6%
More than KRW 12 million and not more than
KRW 46 million KRW 720,000 + the amount exceeding KRW 12 million X 15%
More than KRW 46 million and not more than
KRW 88 million KRW 5,820,000 + the amount exceeding KRW 46 million X 24%
More than KRW 88 million and not more than
KRW 150 million KRW 15,900,000 + the amount exceeding KRW 88 million X 35%
More than KRW 150 million and not more than
KRW 500 million KRW 37,600,000 + the amount exceeding KRW 150 million X 38%
More than KRW 500 million KRW 170,600,000 + the amount exceeding KRW 500 million X 40%
※ Personal local income tax equivalent to approximately 10 percent of the global income tax is imposed (Refer to ‘3-4. Local Income Tax’).
• Income Tax
• Corporate Tax
• Value Added Tax
• Customs Duty
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Retirement Income
Retirement income refers to the income listed below generated in the year concerned. For retirement income incurred from Jan. 1, 2017 to Dec. 31, 2017, the amount of tax on retirement income shall be calculated as follows: ⓐ×60% + ⓑ×40%. Since the applicable tax rate differs depending on the time of retirement, it is advised to check the accurate tax rate for the year concerned.
ⓐ Tax on retirement income = (Tax base for retirement income x 1/ serviced years x 5) x basic tax rate x 1/5 x serviced years
ⓑ Tax on retirement income = (Tax base for retirement income x basic tax rate) x serviced years/ 12
※ Scope of Retirement Income
•Lump sum payments for retirement paid under the laws governing public pension funds
•Income received for actual retirement based on employer dues
•The following income similar to the above:
–Where payment of all or part of the retirement income is deferred and paid along with interest for the deferment, the interest thereof
–Science & technology development incentives paid pursuant to Article 16 (1) 3 of the Korea Scientists and Engineers Mutual-Aid Association Act
–Mutual benefit fund for retirement received under Article 14 of the Act on the Employment Improvement, etc. of Construction Workers
※ Personal local income tax equivalent to approximately 10 percent of the retirement income tax is imposed (Refer to ‘3-4.
Local Income Tax’).
Transfer Income
Transfer income refers to income gained by individuals through the transfer of certain assets during the corresponding year. Under the tax law of Korea, ‘transfer’ refers to the practical transfer of assets for money due to sale, exchange, and in-kind investment in corporations, etc. regardless of the registration status of such assets. Land and buildings, real estate rights, other assets, and stocks (excluding listed stocks transferred on exchange by minority shareholders) are subject to transfer income tax. However, transfer income tax is not levied on income from the transfer of one house for one household (excluding high-priced housings), income from the disposal of assets due to bankruptcy, or an exchange, division, or annexation of farmland.
< Basic Tax Rate on Transfer Income >
Category Tax Rate
Real estate
& right to real estate
Unregistered assets Unregistered assets 70%
Registered assets
Held for less than one year 40-50% (*1)
Held for one year or longer but less than two years Basic tax rate and 40% (*2)
Held for two or more years Basic tax rate (*3)
Land for non-business use Basic tax rate (*4)
Other assets
Shares satisfying certain requirements (shares of corporations holding
excessive real estate, etc.) Basic tax rate (*4)
Assets other than those listed above (goodwill transferred along with
business-purpose fixed assets, right to use given facilities, etc.) Basic tax rate (*3)
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Category Tax Rate
General stocks (*5)
Stocks issued by corporates other than small and medium businesses
Majority shareholder’s stocks held for less than 1
year 30%
Stocks other than those described above 20%
Stocks issued by small and medium businesses 10% (20% for majority shareholder)
(*1) 40% in the case of houses (including accompanying land) and the occupancy right of cooperative members, 50% in the case of other assets.
(*2) Basic tax rate in the case of houses (including accompanying land) and the occupancy right of cooperative members, 40%
in the case of other assets.
(*3) Refer to <Basic Tax Rate on Global Income> above (6-38%).
(*4) Basic tax rate (*3) plus 10% for assets transferred on or after January 1, 2016
(*5) Minority shareholders’ on-exchange trading of stocks listed on the KOSPI, KOSDAQ or KONEX is not taxed.
※ The tax rate of real estate-related tax such as transfer income tax are subject to frequent change, so it is advised to contact the National Tax Service (Call the helpline for foreigners at 82-1588-0560), consult a tax expert or check the relevant laws.
※ Personal local income tax equivalent to approximately 10 percent of the transfer income tax is imposed (Refer to ‘3-4. Local Income Tax’).
2-2 Corporate Tax
Corporate tax refers to tax imposed on income earned by businesses. Domestic businesses are obligated to pay corporate tax for all income generated domestically and in foreign countries, while foreign businesses are obligated to pay corporate tax for income from domestic sources.
‘Corporate tax for income from the business year’ is levied for the income of businesses in each business year. In the event that land, buildings, housings or adjoining land in specific areas are transferred or land for non-business purposes is transferred, ‘corporate tax for land and other transfer income’ is additionally levied. Where a domestic business is dissolved, ‘corporate tax on liquidated income’ is imposed.
< Basic Tax Rate on Corporate Income >
Tax Base Tax Rate
KRW 200 million or less 10%
More than KRW 200 million but not exceeding
KRW 20 billion KRW 20 million + amount in excess of KRW 200 million X 20%
Exceeding KRW 20 billion KRW 3,980 million + amount in excess of KRW 20 billion X 22%
※ Corporate local income tax equivalent to approximately 10 percent of the corporate tax is imposed (Refer to ‘3-4. Local Income Tax’).
2-3 Value Added Tax
Value added tax (VAT) is a tax levied on added value (profit) acquired in the process of the transaction
of products (goods) or the provision of services. Korea imposes VAT on value generated at each step
of a transaction, and applies a VAT rate of 10 percent. The VAT imposed on businesses is calculated by
subtracting the input tax from the output tax.
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Value added tax should be reported and paid every six months, and the taxable period of six months is divided into three months for a preliminary report.
Taxable period Period for report Payment deadline Reporting entity
1st period Jan.1-Jun.30
Preliminary report Jan.1-Mar.31 Apr.1-25 Businesses
Finalized report Jan.1-Jun.30 Jul.1-25 Businesses and sole
proprietors 2nd period
Jul.1-Dec.31
Preliminary report Jul.1-Sep.30 Oct.1-25 Businesses
Finalized report Jul.1-Dec.31 Jan.1-25 of the following year
Businesses and sole proprietors
※ Zero Tax Rate & Tax Exemption Policies
The zero tax rate is a full tax exemption policy for observing the principle of destination. Under the policy, a zero percent tax rate is applied to certain goods and services to create no output tax and fully refund the input tax on added value created in the previous step in order to eliminate the burden of VAT. On the other hand, the tax exemption policy exempts tax obligations for the supply of certain goods and services under the Value Added Tax Act. In this regard, VAT already imposed in the previous steps remain in the price of the tax exempted goods and services. Hence, the tax exemption policy is a partial tax exemption that does not completely eliminate the burden of VAT.
< Application of the Zero Tax Rate & Tax Exemption >
Policy Application
Zero tax rate
•Export of goods
•Services provided abroad
•Provision of overseas navigation services
•Provision of goods or services for obtaining foreign currency
Tax exemption
•Goods or services considered daily necessities for the general public: Unprocessed food items, tap water, coal briquettes, passenger transport services, housing, etc.
•Goods or services for welfare: Medical or healthcare services, blood donation services, education service, etc.
•Culture-related goods and services: Books, artworks, amateur sporting goods, etc.
•Goods and services related to production elements: Finance, insurance service, supply of land, etc.
•Personal services similar to employed work: Personal services (Entertainers, music composers, etc.)
•Import of tax-exempted goods
※ For detailed information on how zero tax rates and tax exemptions are actually applied, refer to the Value Added Tax Act and established rules.
2-4 Customs Duty
Customs duty is imposed on imported goods. The tax base of customs duty is the value or amount of imported goods (Article 15 of the Customs Duty Act), and tax rates vary depending on the item (Article 49 of the Customs Duty Act).
Customs Duty = Tax Base Ⅹ Tax Rate
* For more information, visit the Korea Customs Service website (www.customs.go.kr).
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3. Local Tax
Local tax is collected primarily to finance the expenses required to provide administrative service to local residents, but also has the functions of distribution of income, development of the local industry and economy, and contribution to balanced national development. Local tax can be categorized into taxation of property, taxation of income and taxation of consumption. Property taxation includes property tax, aggregate land tax, automobile tax, acquisition tax, and registration and license tax.
Income taxation includes local income tax, and consumption taxation includes registration and license tax, leisure tax, tobacco consumption tax, regional resource facilities tax, local consumption tax and local education tax.
※ The tax base and tax rate for local taxes may vary by local government and are subject to change.
In this regard, refer to the tax authority of the local government concerned or related laws and regulations.
3-1 Acquisition Tax
Acquisition tax is imposed on persons who acquire certain assets, and is designed to have those whose tax-bearing capacity is exposed in the process of the transfer of ownership of real estate or vehicles bear tax burden.
The tax base of acquisition tax is the value of the asset at the time of acquisition. This refers to all costs that have been paid before the actual date of acquisition or are payable to the seller or to any third party or parties in order to acquire the relevant asset. As a rule, the acquisition price is based on the amount that is declared by the person who acquires the asset. If the price is not declared or the declared price is below the market price, the standard market price is applied. The actual purchase price is treated as the tax base when an asset is acquired from the central or a municipal government, by import, or when the acquisition price is evidenced by corporate books or court sentence, or when the asset is acquired through open sale. In the case of construction or repair of a building (excluding new buildings or remodeling), change in the type of vehicle, machinery or equipment, or change of land category, the value increased from such an occurrence shall be the tax base.
The standard rates for acquisition tax are as follows and the tax rates may be adjusted within 50 percent of the standard rates based on municipal ordinances.
※ Local education tax may be imposed on acquisition tax in certain municipalities.
• Acquisition Tax
• Registration and License Tax
• Resident Tax
• Local Income Tax
• Property Tax
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< Acquisition Tax - Tax Base & Tax Rates (Article 11 & 12, Local Tax Act) >
Category Tax rates
Acquisition of
real estate
① Acquisition by inheritance 2.8% (2.3% for farmland)
② Free acquisition other than acquisition by inheritance 3.5% (2.8% for non-profit businesses)
③ Original acquisition 2.80%
④ Acquisition by division of public property 2.30%
⑤ Acquisition by division of common property 2.30%
⑥ Acquisition by reasons other than those provided above 4% (3% for farmland)
⑦ Housings acquired for value (Acquisitions on or after August 28, 2013)
•1% (Housings valued at KRW 600 million or less at the time of acquisition)
•2% (Housings valued more than KRW 600 million but not more than KRW 900 million at the time of acquisition)
•3% (Housings valued more than KRW 900 million)
Vessels
Vessels subject to registration
① Acquisition by
inheritance 2.50%
② Free acquisition other than acquisition by inheritance
3.00%
③ Original acquisition 2.02%
④ Acquisition by import
and shipbuilding order 2.02%
⑤ Acquisition by reasons
other than described above 3.00%
Compact vessels, motor-powered water
leisure equipment 2.02%
Ships other than compact ships 2.00%
Vehicles
Non-business passenger vehicles 7%
(4% for compact cars)
Business vehicles 4.00%
Other non-business vehicles 5%
(4% for compact cars) Two-wheeled vehicles as defined in the Motor
Vehicle Management Act 2.00%
Other vehicles 2.00%
Machinery Equipment
Machinery equipment that requires registration according to the Construction Machinery Management Act.
3.00%
Machinery equipment that does not require registration according to the Construction Machinery Management Act.
2.00%
Aircraft
Aircraft subject to Article 3 of the Aviation Act 2.00%
Aircraft whose maximum take-off weight is
more than 5,700 kg 2.01%
Aircraft whose maximum take-off weight is
less than 5,700 kg 2.02%
Standing trees 2.00%
Mining and fishing rights 2.00%
Membership of golf clubs, condominiums, riding clubs,
sports facilities 2.00%
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※ However, a higher tax rate equivalent to two to four times the tax rate is applied in the following cases:
– Acquisition of taxable goods for business purpose in order to build a new factory or expand an existing one in an industrial complex in an overconcentration control area of the Seoul metropolitan area
– Acquisition of real estate that is considered a luxury asset (Villa, golf club, luxury recreation facility, luxury housing or boat)
– Acquisition of real estate for the establishment or expansion of a factory in a large city
3-2 Registration and License Tax
Registration and license tax refers to tax imposed on the registration of matters related to the acquisition, transfer, change or termination of property rights and other rights (registration of acquisition is excluded, as acquisition tax is imposed), and tax imposed on administrative licenses acquired for certain sales facilities and acts, including licenses, permits, registrations, designations, inspections and tests prescribed by law.
The tax base of registration and license tax is the value at the time of registration, value of bonds, or the investment amount. The value at the time of registration shall be the reported value. When no report has been made, or when the reported value falls short of the standard market value, the standard market value at the time of registration shall be applied.
※ Local education tax may be imposed on the amount of registration and license tax paid for certain registrations depending on the region.
< Registration and License Tax – Tax Base and Tax Rate (Article 28 of the Local Tax Act) >
Category Tax base Tax rate
Real estate registration
(*1)
Preservation of ownership Value of real estate 0.8%
Goods without ownership;
establishment and transfer of right of lease
① Surface rights Value of real estate
0.2%
② Mortgage Value of bond
③ Easement Value of dominant
tenement
④ Right to lease on a lump-sum deposit (jeonse) basis
Value of the lump-sum deposit
⑤ Right of lease Monthly rent
Others
① Auction application / provisional
seizure / provisional disposition Value of claim
② Provisional registration Value of real estate
③ Other registrations Per registration Flat amount of KRW 6,000
① Incorporation and payment of
capital Paid-in capital
0.4%
(0.2% for non-profit corporations)
② Increase in capital investment (for-profit corporation)
The amount of capital increase
③ Increase of total equity investment or total assets (non-profit corporation)
The amount of capital increase
Capitalization of revaluation reserves(excluding capitalization within three years of revaluation)
The amount of capital
increase 0.1%
Relocation of head office Per registration KRW 112,500
Establishment of a branch office Per registration KRW 40,200
Registration other than the above Per registration KRW 40,200
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Category Tax base Tax rate
Other registration
Automobile registration
Passenger cars for non-business use
5%
(2% for compact cars) Vehicles for business
use 2%
Non-business use vehicles other than the above
3%
(2% for compact cars)
Vessel registration 0.02%, etc.
Aircraft registration 0.01-0.02%
Construction machinery registration
New registration,
ownership transfer 1%
Settlement of
mortgage 0.2%
(*1) In the case of real estate registration, KRW 6,000 is imposed when the computed tax amount is less than KRW 6,000.
(*2) In the case of a newly-founded corporation or a surviving corporation after merger, or in the case of capitalization of revaluation reserves, KRW 112,500 is imposed when the tax amount is less than KRW 112,500.
3-3 Resident Tax
Resident tax is divided into equipartition, pro rata property and employee-based resident tax. The equipartition resident tax is equally imposed on all individuals or corporations residing or located in the territory of a municipal government; whereas the pro rata property resident tax is imposed based on the gross floor area of a business establishment. The employee-based resident tax is imposed based on the employee payroll.
The municipal government head may adjust the equipartition or employee-based resident tax rate to within 50 percent of the standard rate as provided under municipal ordinance. The head of the municipal government concerned may also lower the pro rata property resident tax rate below the standard rate provided under municipal ordinance. Resident tax is not imposed on those protected under the National Basic Living Security Act, the central and municipal governments, local autonomous government cooperatives, foreign government agencies, international organizations in Korea, and foreign aid organizations (excluding those foreign governments or aid organizations that impose a tax of an identical nature on Korean government agencies or aid organizations). The pro rata property resident tax is not imposed on businesses with business establishments with a gross floor area of 330 m
2or less.
The tax base and tax rates for resident tax are as follows:
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< Resident Tax – Tax Base and Tax Rate (Article 78, Local Tax Act)>
Classification Tax base Tax amount Tax rate
Equipartition
Individual
Individuals who have an addresses in Si/Gun
An amount equal to or less than KRW 10,000 determined by ordinances
Limited tax rate Individuals who have business
establishments in a Si/Gun KRW 50,000 Standard
tax rate
Corporations
More than 100 employees, capital or
investment worth more than KRW 10 billion KRW 500,000
Standard tax rate More than 100 employees, capital or
investment between five to KRW 10 billion KRW 350,000 Not more than 100 employees, capital or
investment worth more than KRW 5 billion
KRW 200,000 More than 100 employees, capital or
investment amount of KRW 3-5 billion Not more than 100 employees, capital or investment amount of KRW 3-5 billion
KRW 100,000 More than 100 employees, capital or
investment amount of KRW 1-3 billion
Others KRW 50,000
Pro rata property
The gross floor area of the business establishment as of the date of taxation (not imposed when the gross floor area is less than 330m2)
Gross floor area of the business establishment: KRW 250 per 1m2 ( Two times for pollutant emitting business establishments)
Employee-based
Employer who pays salary to employees (not imposed when the business
establishment has 50 or fewer employees)
Total employee payroll paid each month x 0.5% (standard tax rate):
to be returned no later than the 10th of the following month
3-4 Local Income Tax
Local income tax is divided into personal local income tax that is imposed on general income, retirement income and transfer income, and corporate local income tax that is imposed on the business income of a corporation, or income from the transfer or liquidation of land, etc.
The head of a municipal government may adjust the local income tax rate to within 50 percent of the standard tax rate as provided under municipal ordinance. Local income tax is not imposed on petty income whose tax amount is less than KRW 2,000.
The tax rate and base rate of local income tax are as follows:
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< Local Income Tax – Tax Base and Tax Rate (Article 92, 103-3, 103-20 of the Local Tax Act) >
Classification Taxable income
and taxpayer Tax base and tax rate Standard tax rate
Personal local income tax
Persons obligated to pay income tax
Global income tax base x standard tax rate 0.6-3.8%
(Retirement income tax base x 1 / service years x 5) x
standard tax rate x 1/5 x service years 0.6-3.8%
Transfer income tax base x standard tax rate 10% of transfer income tax rate
Corporate local income tax
Entities obligated to pay corporate tax
Corporate income tax base of each year’s income x
standard tax rate 1-2.2%
Income from the transfer of land, etc. x 3% (4% in the case of assets not yet registered)
Corporate tax base of income from liquidation x
standard tax rate 1-2.2%
※ With the amendment to the tax law on Jan. 1, 2014, local income tax, which had been a surtax to corporate tax and income tax, became an independent tax. In this regard, local income tax can be imposed on foreign-invested companies regardless of corporate tax incentives.
3-5 Property Tax
Property tax is a Si/Gun tax (or Gu tax) levied on the owners of land, buildings, vessels, and aircraft.
The taxable objects for land are divided into three categories: general aggregate taxation objects, separate aggregate taxation objects, and scheduler taxation objects.
The tax base for property tax is the standard market price. The standard tax rate for property tax is shown in the table below. The tax rates can be adjusted by ordinance within the range of 50 percent of the standard tax rate. However, in the case of the establishment or expansion of factories in overconcentration control areas, five times the tax rate of 0.25 percent (the tax rate for other buildings) shall apply for five years from the first date of taxation.
※ Local education tax equivalent to approximately 20 percent of the property tax may be imposed in some municipalities.
< Property Tax- Tax Base and Tax Rate (Article 111, Local Income Tax Act) >
Category Tax base Tax rate (%)
Land
General aggregate tax
Not more than KRW 50 million 0.2%
More than KRW 50 million and not more than KRW 100 million
KRW 100,000 + 0.3% of the amount exceeding KRW 50 million
More than KRW 100 million KRW 250,000 + 0.5% of the amount exceeding KRW 100 million
Separate aggregate tax
Not more than KRW 200 million 0.2%
More than KRW 200 million and not more than KRW 1 billion
KRW 400,000 + 0.3% of the amount exceeding KRW 200 million
More than KRW 1 billion KRW 2.8 million + 0.4% of the amount exceeding KRW 1 billion
Schedular tax
1. Farmland, orchards, pasture land, forest 0.7% of the tax base 2. Land for golf courses and luxury resorts 4% of the tax base 3. Land other than 1 and 2 0.2% of the tax base
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Category Tax base Tax rate (%)
Building
Buildings for golf courses and luxury resorts 4% of the tax base Factory buildings in residential areas 0.5% of the tax base
Other buildings 0.25% of the tax base
House
Vacation home 0.40%
Other houses
Not more than KRW 60 million 0.10%
More than KRW 60 million and not more than KRW 150 million
KRW 60,000 + 0.15% of the amount exceeding KRW 60 million
More than KRW 150 million and not more than KRW 300 million
KRW 195,000 + 0.25% of the amount exceeding KRW 150 million
More than KRW 300 million KRW 570,000 + 0.4% of the amount exceeding KRW 300 million
Vessel Luxury vessels 5% of the tax base
Other vessels 0.3% of the tax base
Aircraft 0.3% of the tax base
Newly established or expanded factories in overconcentration control areas 1.25% (five times 0.25%) 1)
1) In the event of the establishment or expansion of a factory in an overconcentration control area, five times the tax rate shall be applied for five years from the first date of taxation.
Properties falling into the following categories shall not be subject to taxation.
< Non-Taxable Objects for Property Tax (Article 109, Local Income Tax Act) >
Category Applicable objects
Non-taxation on the state, etc.
•Land owned by the country, local government, local government associations, foreign governments & international organizations stationed in Korea
•Land used for official or public purposes by the country, local governments and local government associations for one year or more
Non-taxation by usage
•Roads, rivers, embankments, conduits, remains, historical relics and graves as prescribed by Presidential Decree
•Forest protection zone and other lands having considerable grounds for non-imposition of property tax in the public interest
•Buildings constructed for temporary use, which fall short by one year of the property tax base date
•Ships used for rescue in times of emergency, or as ferries with no charge, as floating bridges, or as barges belonging to a mother ship
•Buildings on which it is improper to levy a property tax, such as buildings subject to removal by an administrative agency
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1. Customs Clearance
Customs clearance refers to the import, export or return of goods pursuant to the procedures prescribed by the Customs Act. Customs clearance procedures are governed by the Customs Act and trade related laws. When a foreign investor makes an investment-in-kind with capital goods, he/she should complete the import clearance procedure and obtain a written confirmation of completion of investment-in-kind issued by the Commissioner of Korea Customs Service (KCS).
1-1 Import Clearance
Import clearance refers to a series of customs processes whereby goods that arrive in Korea from abroad are declared to a customs office. Upon import declaration, the head of the customs office checks the items listed in the import declaration to determine whether they correspond to the actual goods declared and adhere to the various import regulations, etc. before accepting the import declaration, at which time the due tariffs etc. are collected.
Import Declaration
An import declaration must be filed in the name of the owner or the customs broker, the customs brokerage firm, or the customs clearance handling firm. In principle, a declaration can only be filed after the ship or plane carrying the loaded goods has entered the port/airport. However, when swift customs clearance is required for imported goods, declaration can be made earlier as determined by the Commissioner of KCS (i.e., before departure from/entry into a port, before entering a bonded area, or following storage in a bonded area).
• Import Clearance
• Customs Clearance of a Foreign-Invested Company’s Capital Goods
• Bonded Area
Customs Clearance & Tariffs
04
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※ Time of import declaration
•Before departure from port: Declaring goods imported via a plane or ship from Japan, China, Taiwan, Hong Kong, etc. prior to the ship or plane’s departure from the port/airport (Declaration can be filed starting five days before a ship’s entry into a port, or one day before a plane’s arrival at an airport in Korea.)
•Before entry into port: Declaring imported goods after the ship etc. carrying the goods leaves the port of loading and prior to its arrival (the time of cargo discharging declaration for air freight and sea freight) at the port (Declaration can be filed starting five days before a ship’s entry into a port, or one day before a plane’s arrival at an airport in Korea.)
•Before entering a bonded area: Declaring imported goods after the arrival of ships, etc. loaded with imported goods at the port and before entering a bonded area for customs clearance
•After storage in a bonded area: Declaring imported goods after storing the imported goods in a bonded area.
Import declaration becomes effective once the customs clearance system receives the declaration documents submitted by the declarer. The taxable goods, applicable laws, foreign exchange rate for taxation, taxpayer, etc. are determined at this point as well.
Required documents
•Invoice and price declaration report, packing list (if required)
•Copy of Bill of Lading (B/L) or Airway Bill (AWB)
•Country of origin certificate (only for required goods)
•Confirmation documents on goods subject to confirmation by the head of the customs office as prescribed by the Customs Act
•Tariff reduction or exemption (payment in installation) application/usage tariff rate application (only for required goods)
•Approval (application) for applying tax rate by agreement
•Confirmation of security for tobacco consumption tax payment under Article 71 of the Enforcement Decree of the Local Tax Act
•Original copy of Kimberley process certificate (limited to rough diamonds)
※ The original copy or a copy certified against the original by the importer can be submitted (the original copy is required for certain documents). In the case of paperless (P/L) declaration, the declarer (e.g., customs broker) should check the declaration documents in advance and submit the details of the declaration in the form of an electronic document. In such case, the declaration form and attachments are not required.
Selection of Goods to be Inspected
In order to check that the items listed in the import declaration form match the imported goods, and also to check whether there are any violations of related laws, selective inspections on imported goods (cargo selectivity, C/S) are carried out according to the standards set by the Commissioner of the KCS, and the goods to be inspected and the documents to be submitted are decided. The importer, manufacturer, declarer, etc.’s violation records and credibility are considered in the selection process.
Inspection of Goods
In principle, when import declaration is made, customs officers will check the formalities of the
declaration form, the legal import requirements, and the documents submitted for declaration to
accept the declaration. However, when the various marks, usage, functions, etc. cannot be checked
solely through the import declaration and submitted documents, or when there is a need to check
whether other goods are concealed and whether the declared goods match the actual goods, the
goods are unpackaged and visually inspected.
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Examination of Customs Clearance Requirements
Goods for post-inspection are inspected to verify compliance with the following formalities:
•Whether all required documents for declaration have been prepared, and whether the items listed
in the declaration form match the actual goods
•Whether the items which the head of the customs office checks for compliance with the import
requirements are appropriately classified and meet the import requirements
•Whether the country of origin has been marked, whether intellectual property rights have been
violated, whether a request for analysis is needed, etc.
In principle, examination of taxation of imported goods is carried out after acceptance of the declaration. However, such an examination is conducted before accepting the declaration of certain items as described below. The following items are also examined to verify the appropriateness of classification, tax rate, taxable value, tax amount, and the appropriateness of the application for tax reduction, tax exemption, or installment payment.
•
Goods subject to tax reduction or exemption and installment payment
•Goods declared by tariff delinquents, or goods subject to imposition notification
•
Goods designated by the Commissioner of the KCS as requiring tax deliberation prior to declaration acceptance for the purpose of securing duty claims (agricultural products, used cars, etc.)
Payment of Tariffs, etc.
For the payment of tariffs and other taxes, a dual system is employed: the payment by report method, by which the declarer reports and pays the self-determined tax amount; and the imposition notice method, by which the head of the customs office determines the tax amount and notifies the relevant party thereof.
The tariff payer must declare the tax base, tax rate and paid tax amount on all imported goods, excluding goods subject to imposition notice, to the head of the customs office. The tariff must be paid within 15 days of acceptance of the import declaration, or prior to acceptance of the declaration.
Upon receipt of the tax payment declaration, the head of the customs office examines the items listed on the import declaration and other matters based on the related regulations. When all the conditions are met, the import declaration is accepted and then the reported tax amount is examined.
When the head of the customs office collects tariffs via an imposition notice, the amount of tax to be imposed on the goods concerned is determined and the taxpayer is notified thereof. The taxpayer must pay the tax within 15 days of receiving the notice at a national treasury receipt bank or a post office.
Goods subject to imposition notice are as follows:
•
Goods for which tariffs are imposed in accordance with Subparagraphs 1 through 6 and 8 through 11 of Article 16 of the Customs Act
•
Facilities constructed at bonded construction sites which are operated prior to import declaration
•Goods carried into bonded areas and carried out prior to acceptance of the import declaration
•
Goods subject to disposition of rectification by the head of the customs office (excluding the tax amount declared for tax payment)
•
Other goods that are subject to notification of installment payment
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<Import Clearance Procedure>
1-2 Customs Clearance of a Foreign-Invested Company’s Capital Goods
When foreign investors make an in-kind investment of capital goods, customs clearance of the capital goods should be completed in addition to investment notification and registration.
Confirmation of the Specifications of Imported Goods
Foreign investors who have completed the investment notification must apply for a confirmation of imported capital goods at a foreign exchange bank or KOTRA. The following items are to be confirmed:
•Capital goods exempted from tariff, individual consumption tax, and value added tax.
•
Capital goods imported by a foreign investor for investment purposes.
•Import of external payment vehicles received by a foreign-invested company from foreign investors
as an investment, or internal payment vehicles created in exchange for external payment vehicles, which are capital goods among the goods designated or notified by the Ministry of Trade, Industry &
Energy according to Article 17 of the Enforcement Decree of the Foreign Trade Act.
Import Clearance
Foreign-invested companies must complete import declaration within five years of the date of notifying investment of the capital goods. However, the deadline may be extended up to one year for unavoidable reasons, such as a delay in factory construction.
If a foreign investor establishes a foreign-invested company through investment in-kind, the goods should clear customs after acquiring the business registration certificate before incorporation in order to benefit from a deduction of value added tax. Also, when foreign-invested companies that are granted tax reduction or exemption by the Ministry of Strategy and Finance import capital goods
Load/Depart
Enter Port & Unload
Enter Port & Unload