Taxation

The national internal taxes consist of direct and indirect taxes and each consists of five internal taxes. Of these ten taxes, the Income Tax, Corporation Tax, and Value Added Tax make up the bulk of the Korean tax revenue. There also exist three national earmarked taxes, namely the Transportation·Energy·Environment Tax, Education Tax, and Special Tax for Rural Development; the revenues from these sources go directly to pre-designated government programs.

There are sixteen local taxes, and they are divided into province and city & county taxes. At the province level, there are four ordinary taxes and three earmarked taxes. At the city & county level, there are seven ordinary taxes and two earmarked taxes. In the six large specially designated cities that are run as autonomous local administrative units (independent of the provinces they appertain to), the tax composition is slightly different from that of the provinces and cities or counties, although the residents are required to pay the same taxes.

A person is either a resident or a non-resident of Korea depending on residence or domicile.  A resident is liable to income tax on items of income derived from sources both within and outside Korea. On the other hand, a non-resident is liable to income tax only on items of income derived from sources within Korea.

Under the income tax law, income earned by both residents and nonresidents is subject to global and schedular taxation. Under global taxation, real estate rental income, business income, earned income, and miscellaneous income attributed to a resident are aggregated and taxed progressively. Interest and dividends are subject to tax withholding. Non-residents are similarly taxed on income from Korean sources. The tax rates on individual income range from 6% to 38%.

When a company is incorporated in Korea, it is deemed a domestic corporation and is liable to tax from worldwide income whereas a foreign corporation is liable to tax on Korean source income. The corporate income tax rates are 10% and 22%. A foreign corporation without a permanent establishment in Korea is subject to withholding tax.

 For detailed information, please click http://www.nts.go.kr/eng/data/KOREANTAXATION2010.pdf

excerpted and updated from the source www.nts.go.kr/eng