Ⅲ. Taxation
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 composite income, retirement income, and transfer income. The taxation system is as follows.
Composite Income
Composite income is the sum of six separate types of income: interest income, dividend income, business income (including real estate rental income), earned income, annuity income, and miscellaneous income. The composite income tax base is calculated by deducting the necessary expenses, and by making income deductions, etc. from the composite income. The composite income tax rate ranges from six to 38 percent. Composite income tax return is exempted for interest income, dividend income and miscellaneous income that can be separately taxed at the source, and for earned income that is exempt from income tax burden due to year-end settlement of earned income.
< Basic tax rate on composite 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 5,820,00 + 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 KRW 37,600,000 + the amount exceeding KRW 150 million X 38%
※ Personal local income tax equivalent to approximately 10 percent of the composite 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 retirements on or after Jan. 1, 2016, the amount of tax on retirement income shall be calculated as follows: ⓐ×80% + ⓑ×20%
ⓐ 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 onTransfer 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 Composite 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 purchase tax from the sales 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 -J un.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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