Taxes in Korea comprise national and local taxes. National taxes are divided into internal taxes, customs duties, and three earmarked taxes; the local taxes include province taxes and city & county taxes as shown below.
Income Tax, Corporation Tax,
Inheritance Tax, Gift Tax, Real Estate
Value Added Tax, Special Excise Tax,
Liquor Tax, Stamp Tax, Securities
Acquisition Tax, Registration Tax,
License Tax, Leisure Tax
Community Facility Tax, Regional
Development Tax, Local Education Tax
City & County Taxes
Inhabitant Tax, Property Taxes, Automobile Taxes, Farmland Taxes,
Butchery Taxes, Tobacco Consumption
Taxes, Motor Fuel Tax
Urban Planning Taxes, Business
The Tax Bureau of the Ministry of Finance and Economy is responsible for drafting tax laws, negotiating international tax treaties and for the preparation of the tax revenue section of the national budget. The National Tax Service, an agency of the Ministry of Finance and Economy, oversees the assessment and collection of internal taxes.
The appeal of a contested tax assessment may begin at the district tax office level or at the level of the regional office of the National Tax Service, or the taxpayer may ask for a review directly from the National Tax Service. If these procedures do not resolve the dispute, the taxpayer has the right to file an appeal with the National Tax Tribunal, also an agency of the Ministry of Finance and Economy, but separate from the National Tax Service. If the decision of the National Tax Tribunal is not in favour of the taxpayer, the taxpayer may file an action with the High Court, at which point the issue will be reviewed in a trial de novo. An appeal from the High Court may be taken to the Supreme Court.
An alternative procedure is to appeal a tax assessment directly to the Board of Audit and Inspection, an independent agency directly under the president. An unfavourable ruling before this body may be reviewed by the High Court with right of appeal to the Supreme Court. This appeal procedure is not often used. The primary function of the Board of Audit and Inspection is to audit the operations of other government bodies. Its power to review tax assessments is only a small part of its authority. The National Tax Tribunal, on the other hand, is involved exclusively in the hearing of tax appeals.
The taxpayer is entitled to interest at the statutory rate on any refunds found to be owed to the taxpayer. Interest runs from the due date of the payment, or actual payment date, whichever is later, until the date a vested right to the refund is created in law.
In addition to the remedial procedures available under the Korean statutes, a resident taxpayer may request the National Tax Service’s Assistant Commissioner (International), the competent authority of Korea, to initiate mutual agreement procedures (also referred to as ‘competent authority assistance procedures’) if the taxpayer believes that a foreign tax authority in a jurisdiction with which Korea has a tax treaty in force has taken a position in contravention of the provisions of such treaty.
Pursuant to these procedures, the taxpayer may request that the district tax office delay issuance of a tax payment notice, or extend the time to pay tax after a tax payment notice has been given. Further, the taxpayer may request the authorities to extend the limitation for appeals to the National Tax Service or the National Tax Tribunal. The terms of settlement at the competent authority level may be enforced, irrespective of the running of the statute of limitations, within one year from the date of the settlement.
The tax assessment authority is required to issue a pre-determination notice to the taxpayer before issuing the tax payment notice. This gives the taxpayer an opportunity to file a complaint with the district tax office based on the notice before the actual tax assessment is made.
A corporate taxpayer must file a tax return and pay corporation tax as set out below.
Filing is required of:
Kinds of tax returns to be filed Two types of returns are required:
The former is referred to as “corporate tax returns,” and the latter as “semi-annual tax returns.” Whenever a taxpayer’s fiscal year exceeds six months, except for the first fiscal year, a semi-annual as well a corporate tax return must be filed.
A tax return consists of a corporation tax and taxable income report form, other detailed schedules as specified in the Enforcement Regulation of the Corporation Tax Law, and financial statements prepared in conformity with the Korean Business Accounting Principles. Among the financial statements required are balance sheets, profit and loss statement, and statement of appropriation of earned surplus (or statement of disposal of deficit).
Corporate taxpayers having transactions with foreign parties in a special relationship during the fiscal year are required to report such transactions to be filed with the annual return.
A corporate taxpayer preparing its own tax return or prepared by an approved preparer is required to file within three months from the end of its fiscal year.
As a general rule, corporation tax must be paid on filing the tax return and no later than the deadline for filing. A corporate taxpayer may elect to pay the tax on an instalment basis if the corporation tax payable exceeds 10 million won. In such a case, a portion of the corporation tax may be deferred for 1 month from the date of filing the tax return. Certain small corporations, as defined in the statute, may defer payment of tax for 2 months.
A corporate taxpayer is required to file a semi-annual tax return if its fiscal period exceeds six months. Corporation tax payable on filing a semi-annual tax return is based on 50% of the corporation tax paid in the preceding fiscal period. This amount may vary if the preceding period is not a full calendar year. If a taxpayer determines that the amount of corporation tax to be paid based on the 50% rule is greater than the amount of corporation tax based on the actual profit or loss shown on its books for the pertinent 6-month period, the taxpayer may file the semi-annual tax return on the basis of its financial statements and pay corporation tax on the taxable income so computed. For interim payments, filing and payment is required within two months after the end of each six-month period.
A taxpayer may file an amended tax return showing entitlement to a tax refund or an increase in loss within three years from the statutorily determined deadline for filing the initial tax return. On the other hand, an amended tax return showing an additional tax payment or a decrease in loss may be filed at any time before the tax office advises the taxpayer of an adjustment as a result of the re-determination process. Filing an amended tax return may permit the taxpayer to reduce certain tax penalties.