TITLE : FAQ on FDI in Korea 2023 (Q86~Q90)
페이지 정보
본문
■ FAQ on FDI in Korea 2023 (Q86~Q90)
Taxation and Accounting
Q86 | What methods of calculating the arm's length price (ALP) do the Korean tax authority recognize? |
A86 | The Korean tax law (the Adjustment of International Taxes Act)requires companies to select and apply the most reasonablemethod among the following |
- Comparable uncontrolled price method
- Resale price method
- Cost-plus method
- Profit split method
- Transactional net margin method
- Other methods deemed reasonable in the light of actual transaction practices
The sixth method is applied only when any of the five methods abovecannot be used to calculate ALP.
Q87 | What is the transfer price tax system? |
A87 | The transfer price tax system is applied when a company pays ahigher or lower price in doing transactions with foreign partiesof special interests, resulting in lower taxable income. The taxauthorities recalculate the taxable income based on the arm’slength price and impose the tax. |
Q88 | What are the differences in taxation between a foreign-invested company and a foreign corporation’s branch office in Korea? |
A88 | There is no difference in the rate, reporting, and payment procedure of taxes between a foreign-invested company and a foreign corporation’s branch office. The only difference is the scope of the tax obligation coming from the different nature of the two. |
- A foreign-invested company is a domestic corporation. Therefore, it isrequired to pay corporate taxes for all the income generated at homeand abroad. However, a foreign corporation’s branch office in Korea is aforeign corporation and shall only pay taxes for domestic-source income.
- A branch office in Korea may be subject to the branch tax dependingon the tax treaty with the relevant country. It shall not benefit from taxreductions or exemptions under the Restriction of Special Taxation Actoffered to Korean corporations.
Q89 | What are the criteria to classify a foreigner as a resident obliged to pay taxes under the Income Tax Act of the Republic of Korea, and what is the scope of the taxable income? |
A89 | According to the Income Tax Act, a resident is not defined by nationality. Any individual who has his/her domicile or placeof residence in Korea for at least 183 days is a resident under the Income Tax Act. |
- Under the Income Tax Act, a domicile refers to a principal place ofliving based on the objective facts of the living relationship, such asthe existence of a family member who shares a livelihood in Korea andwhether there is property located in Korea. A place of residence means aplace where a person has lived for a long time besides his/her domicile,and in which there is no general living relationship as close as a domicile.
- A resident is obliged to pay tax on all income prescribed by the IncomeTax Act. As for a foreign resident who has had his/her domicile or placeof residence for not more than five years in total from 10 years before theend of the relevant taxable period, tax shall be imposed only on his/herincome paid in or remitted to the Republic of Korea, in cases of taxableincome from foreign sources.
Q90 | What is the ceiling and scope of entertainment expenses that can be included as deductible expenses? |
A90 | Entertainment expense means entertainment expenses, social expenses, a recompense, and other expenses in a similarnature regardless of the pretext thereof. A domestic corporation disburses the entertainment expense to facilitate business withthose directly or indirectly involved with her/her business. The ceiling of entertainment expense is as follows. |
Ceiling of entertainment expense
Ceiling = Basic limit (KRW 12 million, KRW 36 million for SMEs) X Numberof months in the corresponding business year / 12 + Income x Rate)
Income | Rate |
Up to KRW 10 billion | Total income x 0.3% |
Above KRW 10 billion & up to KRW 50 billion | KRW 30 million + (Amount exceeding KRW 10 billion x 0.2%) |
Above KRW 50 billion | KRW 110 million + (Amount exceeding KRW 50 billion x 0.03%) |
Evidentiary documents of entertainment expenses
Appropriate evidentiary materials for entertainment expenses exceeding KRW 30,000 at one occasion include the tax invoice, cashreceipt, and corporate credit card bill (including a company card in an employee’s name). Expenses over KRW 30,000 paid in cash or by personal credit card are not recognized as deductibles. In case of disbursement on congratulatory or condolence occasions, wedding invitations or other relevant proof may serve as evidentiary documents as long as the entertainment spending does not exceed KRW 200,000 at one occasion