Korea Accounting and Tax Regulations
Here are the accounting and tax regulations that global investors must know before they step into the South Korean market:
1. Corporate income on South Korea is taxed at 10% on the first 200 million won, 20% on income between US$180,000 and US$20m and 22% for incomes more than US$20m.
2. The VAT in South Korea comes down to 10% on sale and transfer of goods and services. It is mandatory to submit VAT invoicing in an electronic format and if it is not done this way, penalties apply.
3. South Korea non-resident companies that have no Permanent Establishments (PEs) in South Korea have to pay withholding tax on every income item.
4. Resident foreigners have to pay taxes on their global income, in case they have lived in South Korea for more than 5 years from a 10-year period. For individuals who have lived for shorter periods are required to pay taxes only on their locally earned income and foreign-sourced income.
5. Foreigners employed in Korea are given a special rebate, while foreign immigrants and workers can apply for a fixed tax rate of 16.5% on their earnings.
6. Three-monthly VAT filing is essential even if the company is inactive.
7. Yearly tax returns must be submitted to the National Tax Service of South Korea after putting a business in place in South Korea.
8. South Korea does not levy export duties.
9. After a South Korean company is set up, yearly external audits need to be carried out if a company’s total assets exceed US$1 million.
10. Before importing any product to Korea from abroad its customs duties must be paid. The tax amount is dependent on the type of imported goods and quantity.
11. The only tax that non-resident individuals must pay on their earnings in South Korea is personal income tax.
12. For drawing foreign direct investment (FDI), the Korean government offers tax incentives to small and medium-sized enterprises (SME) like;
i) An SME investing in factory machinery or advanced office supply may avail a 5% tax credit of the invested amount, and
ii) the tax rebate for improving technology and manpower has been hiked from 10% to 15%.
13. South Korea has signed 54 DTAs (double taxation treaties), cutting down local withholding tax on payments to non-residents.
14. A company is required to file a provisional tax return with the Korean Government, including i) balance sheet ii) profit and loss statement and iii) a trial balance.
In the next 5 years, South Korea will call for tenders from foreign building firms to assist the building of infrastructure with an expenditure of US$300bn on airports, roads and railways by the end of 2020. Hence, a high inflow of global investors is expected in the times to come.
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