Korea Tax Guide for Foreign Companies: CIT, VAT, Payroll & More

Expanding into South Korea opens access to one of Asia’s most advanced and profitable markets.
But success requires more than registering your company — understanding the Korean tax system is critical 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.

Corporate Income Tax (CIT) 📊

Korean corporations, including foreign-invested entities, are subject to progressive corporate income tax rates:

• 9% on taxable income up to ₩200 million
• 19% on ₩200 million – ₩20 billion
• 21% on ₩20 billion – ₩300 billion
• 24% on taxable income above ₩300 billion

A local income surtax of 10% of the corporate tax amount applies, bringing the combined effective top rate to ~26.4%.

Value-Added Tax (VAT) 💰

• Standard rate: 10% on most goods and services
• Registration: Mandatory with the National Tax Service (NTS) after incorporation
• Filing: Returns must be submitted quarterly; input VAT is generally creditable against output VAT

Withholding Taxes 📝

Foreign companies making cross-border payments should review Korea’s withholding tax rules:

• Dividends: 20% + 2% local surtax (may be reduced under tax treaties)
• Interest & Royalties: 20% + 2% local surtax (treaty benefits often apply)

Tip: Korea has signed 90+ Double Taxation Treaties (DTTs) — applying treaty rates can reduce withholding significantly.

Transfer Pricing Rules 📑

Cross-border transactions between related parties must comply with arm’s length principles.

• Maintain documentation to show prices reflect market value
• Non-compliance can result in adjustments, penalties, and interest charges

Payroll & Personal Income Tax 👥

Employers are responsible for withholding personal income tax and contributing to Korea’s four mandatory social insurances:

• Personal Income Tax: Progressive 6–45% rates, plus local surtax
• Social Insurance: Shared cost for:
  • National Pension
  • National Health Insurance
  • Employment Insurance
  • Industrial Accident Compensation Insurance

Tax Incentives for FDI 🎁

South Korea offers several programs to attract foreign direct investment:

• Tax Holidays/Reductions: For high-tech or strategic industries
• Regional Incentives: In Free Economic Zones (FEZs) and Special Economic Zones (SEZs)
• R&D Credits: For tech and innovation-driven projects
• Government Support: Streamlined processes under the Foreign Investment Promotion Act (FIPA)

Filing & Reporting Deadlines 📅

Warning: Late filings can result in penalties up to 20% of tax due plus interest.

Building a Tax-Ready Strategy 🚀

South Korea’s tax regime is transparent and investor-friendly, but navigating it without local expertise can be challenging.
From corporate tax to VAT, payroll, and transfer pricing, every step requires accuracy and compliance.

At SMA Lawfirm, we provide:

• Full tax registration and compliance support
• Corporate tax, VAT, and payroll filing services
• Guidance on tax-efficient corporate structuring
• Advisory on incentives and FDI benefits

📩 Ready to expand into Korea with confidence?
Contact SMA Lawfirm today and ensure your Korean business is compliant and optimized for growth.