TOBY & JUSTIN
Corporate income tax (CIT) in Korea
Corporate income tax (CIT)
CIT is imposed on the taxable income of domestic corporations, foreign corporations and other entities treated as corporations for South Korean tax purposes. Domestic corporations must pay tax on all taxable income from domestic and foreign sources (that is, their worldwide income), whereas the tax liabilities of foreign companies are limited to South Korean-sourced income.
CIT is calculated on the taxable income remaining after deducting the gross amount of losses of a domestic corporation for each business year. The CIT based on income generated by foreign corporations with a permanent establishment (PE) in South Korea is calculated in a manner similar to that of domestic corporations. For foreign corporations without any PEs in South Korea, the CIT is calculated based on the amount of South Korean-sourced income. In the case of a foreign corporation without a PE, the payer of domestic sourced income to the foreign corporation bears the obligation to withhold the CIT.
The CIT rates (including 10% local income tax) for business years commencing on or after 1 January 2018 that are applicable to domestic corporations and foreign corporations with PEs depend on the level of corporate income received, and are charged at the following cumulative rates:
• 11% on corporate income of up to KRW200 million.
• 22% on corporate income of between KRW200 million and up to KRW20 billion.
• 24.2% on corporate income of between KRW20billion and up to KRW300 billion.
• 27.5% on corporate income over KRW300 billion.
Withholding tax for foreign corporations with no PE
Withholding tax is charged on each separate item of South Korean-sourced income for foreign corporations without PEs, and the applicable withholding tax rates on corporate transactions are as follows:
• 22% for interest on loans, dividends and royalties.
• 15.4% for interest on bonds.
• For share transfers, the lesser of either:
• 11% of the proceeds of the sale; or
• 22% of the capital gains made.
The tax rates may be reduced or exempted by an applicable double tax treaty between South Korea and the country in which the foreign corporation is a tax resident.