South Korea

Market overview

In December 2016, the South Korean government enacted BEPS-related legislation pertaining to country-by-country reporting (CbCR). Additional elements include new specification for compliance failures in TP documentation and interest rates for foreign related-party loans.

The amendments by the Tax & Customs Office of the Ministry of Strategy and Finance (MOSF) state that CbCR should be filed by the Korean ultimate parent company of an MNE when its consolidated sales revenue exceeds KRW 1 trillion ($887 million) in the preceding fiscal year.

The MOSF has also granted an extension to MNEs to submit the master and local file to 12 months after the end of the fiscal year, from the previous three-month deadline, which was also concurrent with the filing of corporate income tax returns. MNEs with existing APAs have been granted an exemption from having to submit the local file, if the APA already covers relevant transactions and is considered to fall in line with accepted arm's-length standards.

The amendments specify new penalties for failure to submit or adequately prepare the master file, the local file and CbCR. Previously, South Korean law stated that the penalty for failure to submit or submission of falsely described reports was KRW30 million per report. The amendment now states that each report individually is subject to a penalty of KRW10 million.

New guidance also mandates that MNEs conducting business in Korea are required to submit a reporting entity notification form. The form must be submitted within six months of the end of the fiscal year. The filing of the form must be submitted by the ultimate parent company based in Korea and branches located in Korea where the parent company resides in a foreign country.

Effective for inter-company loans from foreign related parties since February 2017, rates can be set in accordance with the MOSF's arm's-length interest rate or a proprietary calculation. This allows the taxpayer to choose between alternative calculation methods.

In early 2017, the MOSF also signed an agreement on the automatic exchange of financial account information with Hong Kong and published plans to foster bilateral exchange with another 45 countries this year, including the Netherlands, Belgium and Ireland.


Tax authorities

National Tax Service
Sejong Government Complex II, 8-14, Noeul 6-ro
Sejong Special Self-Governing City, 30128
Tel: +82 44 204 2200
Email: service@mail.nts.go.kr
Website: www.nts.go.kr


Tax rates at a glance

(As of August 2017)

Corporate income tax rate 22% (a)(b)
Capital gains tax rate 22% (a)(b)(c)
Branch income tax rate 22% (a)(b)
Branch profits tax rate n.a. (d)
 
Withholding Tax
Dividends 0% (e)
Interest 14% (b)(e)
Royalties from patents, know-how, etc. 0 (e)
 
Net operating losses (years)
Carryback 1 (f)
Carryforward 10 (g)

  1. This is the maximum rate.
  2. Local income tax (formerly referred to as resident surtax) is also imposed at a rate of 10% of corporate income tax payable before offsetting tax credits and exemptions.
  3. Capital gains are included in ordinary taxable income for corporate tax purposes.
  4. This tax is imposed on income that is remitted or deemed to be remitted by a Korean branch of a foreign corporation. The branch profits tax may be payable if the foreign company is resident in a country with which Korea has entered into a tax treaty and if the treaty requires the imposition of a branch profits tax. For a list of these countries and the rates of the tax. The branch profits tax is imposed in addition to the income tax imposed on branches.
  5. For payments to domestic corporations and foreign corporations with a place of business in Korea. For withholding rates applicable to payments to foreign corporations that do not have a place of business in Korea.
  6. Only small and medium-sized enterprises are entitled to carry back losses.
  7. Except for small and medium-sized enterprises and certain other companies (for example, companies under court receivership), the annual deductibility limit for loss carryforwards is 80% of taxable income.
  8. Interest subject to 15.4% withholding tax

Source: EY 2017 Worldwide Corporate Tax Guide and Deloitte


Firm contact details

Deloitte Anjin
Yoon & Yang
Yulchon