TITLE : FAQ ON FDI IN KOREA 2023 (Q82~Q85)
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작성일
2023
2023-11-21
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■ FAQ on FDI in Korea 2023 (Q82~Q85)
Taxation and Accounting
Q82 | What are the types and rates of taxes levied on foreign-invested companies (corporations)? |
A82 | Foreign-invested companies bear the same tax burden asdomestic companies. In general, corporations are subject tocorporate tax, corporate local income tax, value-added tax(VAT), and additional taxes that may be imposed on specifi ccases according to tax laws.ion by foreigners. |
- Corporate tax
The following tax rates shall apply according to the income bracket:- Not over KRW 200 mil.: 9%
- Over KRW 200 mil. and not over KRW 20 bil.: 19%
- Over KRW 20 bil. and not over KRW 300 bil.: 21%
- Over KRW 300 bil.: 24%
- Local corporate tax
The following tax rates shall apply according to the income bracket:- Not over KRW 200 mil.: 0.9%
- Over KRW 200 mil. and not over KRW 20 bil.: 1.9%
- Over KRW 20 bil. and not over KRW 300 bil.: 2.1%
- Over KRW 300 bil.: 2.4%
- Value added tax
Tax levied on the supply of goods and services and the import of goods- Tax rate: 10% (0% for exported goods)
Q83 | Are foreign-invested companies subject to external audits? |
A83 | A stock-listed corporation, a company that intends to be a stock-listed corporation, and other companies that meet the standards prescribed by Presidential Decree in terms of assets, liabilities, number of employees, or sales at the end of the immediately preceding business year shall undergo anaudit performed by an external auditor. In this regard, foreigninvested companies that meet certain criteria are subject to external audit just as purely domestic companies are. From the business commencement year starting on November 1, 2019 or after, limited companies shall also receive an externalaudit. Limited companies that transitioned from stock companies on November 1, 2019 or after should meet the external audit requirements for the following five years from the date of registration of the change*. |
< Companies subject to external audit >
CategoryStock companyLimited company="center">="center">="center">Criteria | Asset | KRW 12 billion or more | KRW 12 billion or more |
Liability | KRW 7 billion or more | KRW 7 billion or more | |
Sales | KRW 10 billion or more | KRW 10 billion or more | |
No. of employees | 100 or more | 100 or more | |
No. or shareholders | - | 50 or more | |
Standards (Small company) | Subject to external audit ifmeeting at least 2 out of 4criteria | Subject to external audit ifmeeting at least 3 out of 5criteria | |
Large-sized company | Subject to external audit if the asset or sales isKRW 50 billion or greater |
* Article 4, 5 of the Act on External Audit of Stock Companies
Q84 | What is the difference between an individual business and a corporate business in terms of taxation? |
A84 | In terms of a simple comparison of the tax rate, a corporate business pays less tax than an individual business if the taxbase is higher than KRW 12 million. It appears advantageous as the reduced taxation may translate into higher net profit, more reinvestment, and consequent expansion of the business. However, there are other aspects to consider from a more holistic view, including limited options to recoverbusiness profits (salary, retirement income, dividend, and others) and taxes on other income (earned income, retirement income, dividend income, etc.) imposed at each step. |
< Individual Business vs. Corporate Business >
Individual business | Corporate business | |||||||||||||||||||||||||||||
Taxable income | Specific incomes listed in the Income Tax Act (income source) | The whole amount of increased net assets in the corresponding business year (increased net asset) | ||||||||||||||||||||||||||||
Taxation scope | Income from the corresponding year | Business income and liquidated income from each business year | ||||||||||||||||||||||||||||
Bracket |
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Bracket | ※ Individual local income taxequivalent to 10% of the calculated general income tax is imposed | ※ Individual local income taxequivalent to 10% of the calculated corporate tax is levied. | ||||||||||||||||||||||||||||
Representative’s salary and severance pay reserve | Exclusion from necessary expense, not subject to setan account | Included in the deductible expense, subject to set anaccount | ||||||||||||||||||||||||||||
Deemed interest on suspense payment | Not included in the calculation (withdrawal of investment) |
Calculated (Loan) | ||||||||||||||||||||||||||||
Deemed rent calculation | All real estate leasing businesses | All corporations are subject in case of estimated tax return.but only domestic for-profit corporations with excessive loan in real estate business are subject in case of tax return by bookkeeping | ||||||||||||||||||||||||||||
Establishment procedure | Simple | Relatively complicated; incurs costs such as registration tax | ||||||||||||||||||||||||||||
Business operations | Few restrictions | Bound by resolution of general shareholder meetings or theboard of directors meetings | ||||||||||||||||||||||||||||
Recovery of profits | Few restrictions | Restricted to salary, severance pay, dividends and others | ||||||||||||||||||||||||||||
Liabilities for debt from business operations | Unlimited | Limited |
Q85 | What are the documents required when a foreign-invested corporation applies for business registration, and how long does the registration process take? |
A85 | The following documents are required for application for business registration. The processing period is three days. |
- A copy of corporate establishment notification and application for business registration
- A certified copy of corporation registration
- A copy of the lease contract (in case the place of business is rented)
- A list of shareholders or investors
- A copy of certificate of completion of business approval, registrationor notification (For the registering business. If applying for business registration before completing business approval, registration or notification, a a copy of an application for business approval, registration, etc. or a business plan may be submitted instead.)
- A statement of investment-in-kind (for corporations invested in-kind)
- A copy of certificate of foreign investment notification or foreign currency purchase
- A copy of alien registration card or passport (if the representative is nonresident