South Korea Tax Regime

System and legal framework

South Korea operates a self-assessment tax system administered by the National Tax Service (NTS) at national level and by local governments for local taxes. The principal statutes are the Corporate Tax Act, the Income Tax Act, the Value Added Tax Act, the Adjustment of International Taxes Act (which houses transfer pricing, controlled foreign company and global minimum tax rules), and the Framework Act on National Taxes, which supplies procedural and general anti-avoidance provisions. Local taxation flows from the Local Tax Act, most importantly the local income tax that surcharges nearly every national income tax at 10%.

A defining feature of the Korean system is that headline national rates are rarely the whole story: a local income tax equal to 10% of the national income or corporate tax liability is layered on top of both corporate and personal income taxes. Throughout this handbook, combined figures state the national rate plus this 10% local surtax so that the true economic burden is visible. For corporations the combined top rate is 27.5% and for individuals 49.5%.

Residence and taxable scope

A corporation is resident if its head or main office, or its place of effective management, is in Korea; resident companies are taxed on worldwide income. Non-resident companies are taxed only on Korean-source income, through a permanent establishment or by withholding at source. Individuals are resident if they have a domicile in Korea or have resided there for 183 days or more in a tax year; residents are taxed on worldwide income, while non-residents are taxed only on Korean-source income.

The tax year for individuals is the calendar year. Companies may adopt any fiscal year of up to 12 months as stated in their articles of incorporation. Korea uses the won (KRW) and the NTS publishes guidance, forms and an English-language reference portal; figures in this handbook reflect the law as amended by the 2025 tax reform (enacted 31 December 2024) and the 2026 tax reform (enacted 23 December 2025), verified against NTS guidance and the underlying legislation as of July 2026.

Headline statutory corporate income tax rate for a resident company. Where sub-national (state, provincial, cantonal or municipal) corporate taxes apply, the combined rate reported by the OECD is shown. Projected 2026–2028 rates carry the current rate forward unless a change is already enacted or officially scheduled. As-of 2026.

Top marginal statutory personal income tax rate on employment income for a resident individual. Where sub-national (state, provincial, cantonal or municipal) income taxes are a standard part of the system, the combined top rate is shown. Projected 2026–2028 rates carry the current rate forward unless a change is already enacted or officially scheduled. As-of 2026.

Rates and the local surtax

Corporate income tax is progressive across four national brackets of 10%, 20%, 22% and 25%, the top rate applying to taxable income above KRW 300 billion; each bracket was raised one percentage point under the 2026 tax reform, effective for fiscal years beginning on or after 1 January 2026. On top of the national tax, a local income tax equal to 10% of the national corporate tax is assessed and filed separately with the relevant local government. The combined burden therefore runs from 11% at the bottom to 27.5% at the top.

The brackets are marginal, so only the slice of income within each band is taxed at that band's rate. For fiscal years that began before 1 January 2026 the prior national schedule of 9/19/21/24% applies; readers dealing with a straddling or earlier period should apply the schedule in force at the start of that fiscal year.

Tax base, losses and consolidation

The corporate tax base starts from accounting profit and is adjusted for tax purposes. Business losses may generally be carried forward for 15 years, with utilisation capped at 80% of taxable income for large companies (100% for small and medium-sized enterprises, SMEs). A one-year carry-back is available for SMEs. Korea permits consolidated tax filing for a domestic parent and its wholly owned (100%) domestic subsidiaries, allowing intra-group profit and loss offset within the consolidated group.

To encourage the deployment of retained earnings, an additional 20% tax on excessive corporate earnings reserves that are not directed to facility investment, wage increases or dividends applies to certain larger companies (SMEs are excluded), currently legislated through 31 December 2028. A separate minimum tax regime also constrains the extent to which credits and exemptions can erode the effective rate, generally at 17% for large corporations (with lower minimum rates for smaller companies).

Credits and incentives

Korea offers generous research and development and investment tax credits, with enhanced rates for national strategic technologies such as semiconductors, secondary batteries and advanced displays. Foreign-invested companies in designated high-technology sectors and free economic zones may qualify for cash grants and local tax reductions. Credits are subject to the minimum tax floor, and the interaction of incentives with the new global minimum tax should be modelled carefully by in-scope multinationals.

Rates and the local surtax

Individual income tax is levied at eight progressive national rates from 6% to 45%. As with companies, a local income tax equal to 10% of the national liability is added, producing combined marginal rates from 6.6% to 49.5%. The brackets below are unchanged for the 2025 and 2026 tax years.

Employment income and the foreign worker election

Employment income is taxed after standard deductions, personal and dependent allowances, and various tax credits. Employers operate monthly payroll withholding, and a year-end settlement reconciles the annual liability so that most employees with only wage income do not file a separate return. Foreign nationals working in Korea may elect a flat 19% national rate (20.9% including the local surtax) on gross employment income in lieu of the progressive schedule and deductions; this election is currently available for up to 20 years for those commencing Korean employment by 31 December 2026.

Investment, capital gains and property income

Interest and dividend income are generally subject to 14% national withholding (15.4% including local tax); once an individual's aggregate financial income exceeds KRW 20 million in a year, it is combined with other income and taxed at progressive rates under global taxation. Capital gains on real estate are taxed under a separate schedule with rates that vary by holding period and property type, and gains on unlisted shares and large listed shareholdings are taxable, while gains realised by ordinary retail investors on listed shares remain outside the personal capital gains net (a broader financial investment income tax was repealed rather than implemented). A comprehensive real estate holding tax applies to owners of high-value property portfolios.

Domestic statutory rates on non-residents

Payments of Korean-source income to non-residents without a Korean permanent establishment are subject to final withholding tax. The rates below are inclusive of the 10% local income tax surtax on the withholding amount and are the statutory (pre-treaty) rates.

Gains realised by a non-resident on the transfer of Korean shares are subject to withholding at the lesser of 11% of the gross sales proceeds or 22% of the net gain (rates inclusive of local tax), subject to treaty relief. Interest on certain foreign-currency denominated bonds issued outside Korea by a Korean company or government body can qualify for a 0% rate.

Treaty network and relief procedure

Korea maintains an extensive network of over 90 double tax treaties, most following the OECD Model, and is a party to the Multilateral Instrument (MLI) implementing BEPS treaty measures including a principal purpose test. Treaties commonly reduce withholding on dividends to 5%-15%, interest to 0%-12.5% and royalties to 2%-15%. To apply a reduced treaty rate at source, the payer must obtain a completed application for entitlement to reduced tax rates and beneficial-ownership documentation from the recipient; otherwise the domestic rate is withheld and the non-resident must claim a refund. Anti-treaty-shopping and beneficial-ownership scrutiny is significant, reflecting Supreme Court jurisprudence on substance over form in conduit structures.

Transfer pricing

The Adjustment of International Taxes Act requires that transactions between a Korean taxpayer and foreign related parties be conducted at arm's length, applying OECD-aligned methods. Taxpayers exceeding prescribed thresholds must prepare and file a Master File and Local File, and large multinational groups file Country-by-Country reports. For intercompany financing, Korea applies a safe-harbour interest approach based on a risk-free rate for the relevant currency plus 150 basis points. Documentation and disclosure obligations are extensive and penalties apply for non-compliance.

Controlled foreign companies and thin capitalization

Under the CFC rules, where a Korean resident owns at least 10% of a foreign company located in a low-tax jurisdiction, defined as one whose average effective tax rate is 70% or less of Korea's top corporate rate (i.e. 17.5% or below once the 25% top rate applies from 2026), the foreign company's undistributed passive earnings are deemed distributed and taxed currently in Korea, subject to active-business exemptions. The thin capitalization rule disallows and recharacterises as dividends the interest on borrowing from a foreign controlling shareholder to the extent debt exceeds twice the shareholder's equity (a 2:1 ratio; 6:1 for financial institutions). A separate hybrid-mismatch and earnings-stripping limitation also constrains excessive related-party interest deductions.

GAAR and global minimum tax (Pillar Two)

The Framework Act on National Taxes contains a substance-over-form general anti-avoidance principle empowering the NTS to recharacterise transactions structured principally to avoid tax, reinforced by treaty principal-purpose tests. Korea was an early adopter of the OECD/G20 Pillar Two global minimum tax: the Income Inclusion Rule (IIR) has applied since fiscal years beginning on or after 1 January 2024, the Undertaxed Profits Rule (UTPR) from 1 January 2025, and a Qualified Domestic Minimum Top-up Tax (QDMTT) from fiscal years beginning on or after 1 January 2026, following the 2026 tax reform enacted December 2025. In-scope groups (consolidated revenue of at least EUR 750 million) must ensure a 15% effective rate in each jurisdiction, with top-up tax and GloBE Information Return obligations administered by the NTS.

Value added tax

VAT applies at a single standard rate of 10% on most supplies of goods and services and on imports. Exports and certain international services are zero-rated, and a limited set of supplies (basic foodstuffs, medical, education, financial and insurance services) are exempt. Businesses register for VAT and file quarterly with two preliminary and two final returns per year; foreign providers of electronic services to Korean consumers must register under the simplified e-services regime. Input VAT is generally creditable against output VAT for registered taxable businesses.

Transaction and property taxes

Securities transaction tax applies to transfers of shares; for 2025 onward the rate on KOSPI and KOSDAQ listed shares is 0.15% (inclusive of the special rural development tax), and 0.10% on KONEX and generally 0.35% on unlisted shares. Acquisition tax applies to purchases of real estate, vehicles and certain assets at rates generally from 1% to 7% including local surtaxes, rising to 12% for a corporation acquiring a residential house. Annual property tax and, for high-value holdings, the comprehensive real estate holding tax apply to owners. An individual consumption tax (special excise) is levied on selected luxury and specified goods and services, and stamp tax applies to certain documents.

Social insurance

Employers and employees share four mandatory social insurance contributions. National Pension is 9.0% of wages (4.5% each) in 2025, but is scheduled to rise gradually from 2026 toward 13.0% by 2033. National Health Insurance is around 7.09% for 2025 (rising toward roughly 7.19% in 2026), split equally, with Long-Term Care Insurance levied as a surcharge on the health premium. Employment insurance is 0.9% each for the unemployment component plus an employer-only employment-security and vocational-development portion (broadly 1.15%-1.75% depending on employer size), and industrial accident (workers' compensation) insurance is employer-borne at industry-dependent rates. Contribution bases are capped for pension and health purposes.

Administration and audits

The NTS administers national taxes through regional and district offices and increasingly relies on electronic filing via the Hometax portal, electronic tax invoicing for VAT, and data matching. Companies above size thresholds must have financial statements externally audited, and their tax returns are subject to adjustment on examination. The ordinary statute of limitations for assessment is generally five years from the filing due date, extended to seven years where a return is not filed and to ten years (fifteen for certain cross-border cases) in cases of fraud or evasion.

Rulings, disputes and penalties

Taxpayers may request advance rulings from the NTS and negotiate Advance Pricing Agreements, including bilateral APAs, for transfer pricing certainty. A taxpayer disputing an assessment may pursue a pre-assessment review, then an administrative appeal to the NTS or the Tax Tribunal (an independent body under the Prime Minister's Office), and ultimately judicial review through the administrative courts. Penalties apply for underpayment (generally 10%, or 40% for fraudulent underreporting), late filing and late payment (a daily interest-style charge), with mitigation available for voluntary disclosure. Mutual agreement procedures are available under Korea's treaties to relieve double taxation.

Key deadlines

Deadlines are keyed to the tax year end. Corporate returns are due within three months of the fiscal year end, with an interim (mid-year) prepayment during the year. Individual global income returns cover the calendar year and are filed in May of the following year. VAT is filed quarterly. The table summarises the principal recurring obligations.

Large corporate taxpayers may pay the corporate tax in two instalments. Interest and penalties accrue on late payment, and electronic filing is standard for most obligations. Deadlines falling on a weekend or public holiday roll to the next business day.

Entities and repatriation

Foreign investors commonly operate through a domestic subsidiary (yuhan hoesa or jusik hoesa) or a Korean branch of a foreign company. A subsidiary is a separate taxpayer subject to the standard corporate regime; a branch is taxed on its Korean-source income and may additionally face a branch profits tax where a treaty permits, reflecting the tax that would have applied to a remitted dividend. Dividends from a subsidiary to a foreign parent attract 22% withholding before treaty relief, which frequently reduces the rate materially.

Compliance environment

Korea's compliance infrastructure is highly digital, with mandatory electronic tax invoicing, real-time reporting elements and extensive third-party data. This raises the baseline compliance standard but also enables faster processing of credits and refunds for well-organised taxpayers. Transfer pricing documentation, beneficial-ownership substantiation for treaty benefits, and Pillar Two data readiness are the areas where inbound investors most often need to invest early. Engaging a local licensed tax accountant (semusa) or attorney is standard for audits and disputes.

Recent and upcoming changes

The most significant recent change is the one-point increase in each corporate tax bracket for fiscal years beginning on or after 1 January 2026, taking the combined top corporate rate to 27.5%. Korea's QDMTT completes its Pillar Two implementation from 2026. National Pension contribution rates begin a multi-year climb from 9% toward 13% by 2033. The excess-earnings-reserve additional tax remains legislated through 2028. Taxpayers should confirm the schedule applicable to their specific fiscal year, as several measures phase in by commencement date.