Branch Tax in South Korea

Hello from Samdo Accounting Firm’s Foreign Corporate Division!

When branch office of foreign corporations file corporate tax returns, it’s essential to consider branch tax.

Let's dive into what branch tax is and how to calculate it.

What is Branch Tax?

Branch tax is designed to balance the tax burden differences depending on how a foreign corporation enters the local market. If a foreign corporation establishes a subsidiary, it pays both corporate tax and dividend tax. In contrast, a branch pays only corporate tax without additional tax on remitted income.

Who is Subject to Branch Tax?

Branch tax applies to a domestic establishment of a foreign corporation, provided it meets the conditions specified under tax treaties between Korea and the foreign corporation’s home country.

Calculation Structure

The calculation for branch tax is as follows:

Branch Tax = Taxable Retained Earnings x Applicable Rate

Steps for Calculation:

1. Income for the fiscal year of the domestic establishment

2. (-) Corporate Tax and Local Corporate Income Tax

3. (-) Non-deductible Interest Expense from Thin Capitalization Rules

4. (-) Amount recognized as reinvestment

   
   

Tax Rate

The branch tax rate is generally 20%. However, if a tax treaty stipulates a different rate, the treaty rate will apply.

For more information, feel free to reach out to us at Samdo Accounting Firm’s Foreign Corporate Division!