Expanding into South Korea opens the door to one of Asia’s most advanced and profitable markets. But success depends on more than just registering your business and hiring employees. A clear understanding of Korea’s tax system is essential for long-term growth and compliance.
This guide highlights the key tax obligations foreign companies face when expanding into Korea, along with practical tips to manage them effectively.
1. Corporate Income Tax (CIT)
Korean companies, including foreign-invested entities, are subject to progressive corporate tax rates:
- 9% on taxable income up to ₩200 million
- 19% on ₩200 million – ₩20 billion
- 21% on ₩20 billion – ₩300 billion
- 24% on income above ₩300 billion
In addition, a local income tax of 10% of the corporate tax amount applies, bringing the combined top rate to around 26.4%.
2. Value-Added Tax (VAT)
- Standard VAT rate: 10% on most goods and services.
- Businesses must register for VAT with the National Tax Service (NTS) after incorporation.
- Filing: VAT returns are filed quarterly, and input VAT can usually be credited against output VAT.
3. Withholding Taxes
Foreign companies making cross-border payments should be aware of Korea’s withholding taxes:
- Dividends: 20% (plus 2% local surtax), subject to reduction under tax treaties.
- Interest and royalties: 20% (plus 2% local surtax), treaty rates may apply.
Tip: Always review applicable double taxation treaties (DTTs), as Korea has signed over 90 agreements.
4. Transfer Pricing
Companies with cross-border transactions must comply with arm’s length pricing rules.
- Documentation is required to prove that transactions between affiliates reflect market prices.
- Failure to comply can result in tax adjustments and penalties.
5. Personal Income Tax and Payroll Obligations
Employers are responsible for withholding employee income tax and social security contributions.
- Personal income tax: Progressive rates from 6% to 45%, plus local surtax.
- Social insurance contributions: Employers and employees share costs for the four mandatory programs (National Pension, National Health Insurance, Employment Insurance, Industrial Accident Compensation Insurance).
6. Tax Incentives and Support Programs
South Korea offers incentives to encourage foreign direct investment (FDI):
- Tax holidays or reductions for high-tech or strategic industries (subject to conditions).
- Regional incentives for investments in free economic zones (FEZs).
- R&D tax credits for technology and innovation-focused businesses.
7. Filing and Reporting Deadlines
- Corporate income tax: Filed annually within three months after fiscal year-end.
- VAT: Filed quarterly.
- Withholding tax: Filed monthly or quarterly, depending on the type of payment.
Tip: Late filings can trigger penalties up to 20% of the tax due, plus interest.
Final Thoughts: Building a Tax-Ready Expansion Strategy
Taxation in Korea is structured and transparent, but navigating it without local expertise can be challenging. From corporate tax to VAT, payroll, and transfer pricing, each step requires accuracy and compliance.
At Pearson & Partners Korea, we help foreign companies expand with confidence by managing tax registration, compliance, and ongoing reporting. Whether you’re launching a subsidiary or using an Employer of Record (EOR), our team ensures your business stays compliant and optimized for growth.
Ready to expand into Korea with confidence?
Book a free consultation today and let us guide you through both registration and tax compliance.
For a broader overview, see our Korea Business Expansion Pillar Guide.
For inquiries about Singapore Business Registration, please click here.
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