Corporate Tax Act

The code of KOREAN LAW 1

CORPORATE TAX ACT

Park, Hwiyong

CORPORATE TAX ACT

[Enforcement Date 01. Jan, 2021.] [Act No.17476, 18. Aug, 2020., Partial Amendment]

CHAPTER I GENERAL PROVISIONS

Article 1 (Purpose)

T

he purpose of this Act is to impose taxes fairly, ensure the proper fulfillment of tax liability and contribute to facilitating collection of fiscal revenue, by prescribing the requisition and procedures for imposing corporate tax.

[This Article Newly Inserted on Dec. 24, 2018]

[Previous Article 1 moved to Article 2 ]

Article 2 (Definitions)

T

he terms used in this Act are defined as follows:

1. The term domestic corporation means a corporation with its headquarters, main office or actual business management place located in the Republic of Korea;

2. The term non-profit Korean corporation means any of the following corporations among Korean corporations:

(a) A corporation incorporated pursuant to Article 32 of the Civil Act;

(b) A corporation whose purpose is similar to that provided for in Article 32 of the Civil Act (excluding a corporation that may distribute profits to its stockholders, employees, or investors, other than a cooperative corporation, etc. prescribed by Presidential Decree) , which is incorporated pursuant to the Private School Act or other special Acts;

(c) An organization deemed a corporation under Article 13 (4) of the Framework Act on National Taxes (hereinafter referred to as organization deemed a corporation) ;

3. The term foreign corporation means an organization that has its headquarters or main office in a foreign country in the form of a corporation that meets the standards prescribed by Presidential Decree (limited to such a corporation that does not have a place for actual management of its business in the Republic of Korea);

4. The term non-profit foreign corporation means a foreign government, foreign local government or non-profit foreign corporation (including an organization deemed a corporation) among foreign corporations;

5. The term business year means one fiscal period for the calculation of income of a corporation;

6. The term consolidated tax return system means a system by which two or more domestic corporations file a corporate tax return and pay corporate tax as a single unit that calculates the amount of tax based on a single tax base, as prescribed in Chapter II-3;

7. The term consolidated corporation means a corporation to which the consolidated tax return system applies;

8. The term consolidated group means all consolidated corporations;

9. The term consolidated parent corporation means a consolidated corporation that wholly controls another consolidated corporation of a consolidated group, and the term consolidated subsidiary corporation means a consolidated corporation wholly controlled by a consolidated parent corporation;

10. The term consolidated business year means one fiscal period for the calculation of income of a consolidated group;

11. The term consolidated business year means one fiscal period for which the income of a consolidated group is calculated;

12. The term specially related person means a person who has an economic relationship with a corporation or a relationship prescribed by Presidential Decree, such as a management control relationship. In such cases, the person himself/herself is also regarded as a specially related person of that person;

13. The term merging corporation means a corporation incorporated following a merger or existing after a merger;

14. Merged corporation means a corporation which ceases to exist following a merger;

15. The term divided corporation means a corporation that is divided according to division (including divisional mergers; hereinafter the same shall apply);

16. The term corporation established through division means a corporation incorporated following division.

[This Article Wholly Amended on Dec. 30, 2010]

[Moved from Article 1; previous Article 2 moved to Article 3 ]

Article 3 (Taxpayer)

(1) Any of the following corporations are liable to pay corporate tax on any income pursuant to this Act:

1. A domestic corporation;

2. A foreign corporation which has income from a domestic source.

(2) The State and local governments (including local government associations; hereinafter the same shall apply) among domestic corporations are not liable to pay corporate tax on any income.

(3) Consolidated corporations are jointly liable to pay corporate tax (including corporate tax on capital gains from the transfer of land, etc. referred to in Article 55-2 by each consolidated corporation and corporate tax computed by applying special tax provisions for promoting investment and collaborative cooperation under Article 100-32 of the Restriction of Special Taxation Act) on income for each consolidated business year under Article 76-14 (1) .

(4) Any person who withholds corporate tax under this Act is liable to pay the relevant corporate tax.

[Title Amended on Dec. 24, 2018]

[Moved from Article 2; previous Article 3 moved to Article 4 ]

Article 4 (Scope of Taxable Income)

(1) Corporate tax shall be imposed on the following income of a domestic corporation: Provided, That it shall be limited to the income specified in subparagraphs 1 and 3 in cases of non-profit domestic corporations:

1. Income for each business year;

2. Liquidation income;

3. Capital gains from the transfer of land, etc. referred to in Article 55-2.

(2) In applying paragraph (1) 1, the income of a consolidated corporation for each business year means the income for each consolidated business year referred to in Article 76-14 (1) .

(3) In applying paragraph (1) 1, the income of a non-profit domestic corporation for each business year shall be limited to the income accruing from any of the following business or revenues (hereinafter referred to as profit-making business) :

1. Business specified by Presidential Decree among business engaging in manufacturing, construction, wholesale, retail sales, repair of consumer products, real estate, rental, or business services;

2. Interest income as prescribed in Article 16 (1) of the Income Tax Act;

3. Dividend income as prescribed in Article 17 (1) of the Income Tax Act;

4. Revenues accruing from the transfer of stocks, preemptive right to new stocks, or investment shares;

5. Revenues accruing from the disposal of fixed assets: Provided, That the revenues specified by Presidential Decree, among revenues accruing from the disposal of fixed assets directly used for essential business activities, shall be excluded;

6. Revenues accruing from the transfer of assets prescribed in Article 94 (1) 2 and 4 of the Income Tax Act;

7. Revenues prescribed by Presidential Decree, which accrues from continuing activities be paid, other than those referred to in subparagraphs 1 through 6.

(4) Corporate tax shall be imposed on the following income of a foreign corporation:

1. Income accrued from domestic sources for each business year;

2. Capital gains from the transfer of land, etc. referred to in Article 95-2.

(5) In applying paragraph (4) 1, income accrued from domestic sources of a non-profit foreign corporation for each business year shall be limited to the income accruing from profit-making business.

[This Article Wholly Amended on Dec. 24, 2018]

[Moved from Article 3; previous Article 4 Deleted]

Article 5 (Trust Income)

(1) With regard to income accruing from trust property, the beneficiary to receive the profits of the trust (where no beneficiary is specified or no beneficiary exists, the trustee of the trust or his/her successor) shall be deemed the owner of the trust property for the purposes of this Act.

(2) No revenues and expenditures from trust property of a corporation regulated by the Financial Investment Services and Capital Markets Act (excluding special accounts of an insurance company referred to in Article 251 (1) of the same Act; hereinafter the same shall apply) shall be deemed the revenues and expenditures that revert to the corporation.

[This Article Wholly Amended on Dec. 30, 2010]

Article 6 (Business Year)

(1) A business year shall be one fiscal period prescribed by statutes or a corporation's articles of incorporation: Provided, That this period shall not exceed one year.

(2) A domestic corporation, the business year of which is not prescribed by statutes or its articles of incorporation shall separately determine its business year and report it to the head of the tax office having jurisdiction over the place of tax payment (the head of the tax office as prescribed in Article 12; hereinafter the same shall apply) , along with a report on incorporation referred to in Article 109 (1) or the registration of business referred to in Article 111.

(3) A foreign corporation with a place of business in the Republic of Korea as prescribed in Article 94 (hereinafter referred to as domestic place of business) , the business year of which is not prescribed by the Acts and subordinate statutes or its articles of incorporation shall separately determine its business year and report it to the head of the tax office having jurisdiction over the place of tax payment, along with a report on the establishment of a domestic place of business referred to in Article 109 (2) or the registration of business referred to in Article 111.

(4) A foreign corporation with no domestic place of business which earns income referred to in subparagraph 3 or 7 of Article 93 shall separately determine its business year and report it to the head of the tax office having jurisdiction over the place of tax payment within one month from the date such income is first earned.

(5) Where a corporation liable to file a report under paragraphs (2) through (4) fails to do so, the business year of such corporation shall be from January 1 to December 31 of each year.

(6) In applying paragraphs (1) through (5) , matters necessary for determining the start date of a corporation's first business year shall be prescribed by Presidential Decree.

[This Article Wholly Amended on Dec. 30, 2010]

Article 7 (Change of Business Year)

(1) A corporation which intends to change its business year shall report thereon to the head of the tax office having jurisdiction over the place of tax payment within three months from the end date of the immediately preceding business year, as prescribed by Presidential Decree.

(2) Where a corporation fails to file a report by the deadline specified in paragraph (1) , the corporation's business year shall be deemed unchanged: Provided, That for a corporation, the business year of which is determined by statutes, its business year shall be deemed changed at the time the amended provisions concerning the change of the business year in such statutes have effected, although no report is filed under paragraph (1) .

(3) Where a business year is changed pursuant to paragraph (1) or the proviso to paragraph (2) , the period from the start date of the previous business year to the date preceding the start date of the changed business year shall be deemed one business year: Provided, That where such period does not exceed one month, it shall be included in the changed business year.

[This Article Wholly Amended on Dec. 30, 2010]

Article 8 (Constructive Business Years)

(1) Where a domestic corporation is dissolved during a business year (excluding a dissolution due to a merger or division, and restructuring of corporation prescribed in Article 78) , any of the following periods shall be deemed one business year:

1. The period from the start date of the business year until the registration date of dissolution (referring to the registration date of bankruptcy where a corporation is dissolved on the grounds of bankruptcy and the date of dissolution for any organization deemed a corporation; hereinafter the same shall apply);

2. The period from the day following the registration date of dissolution until the end date of the relevant business year.

(2) Where a domestic corporation is dissolved during a business year due to a merger or division, the period from the start date of the business year until the registration date of the merger or division shall be deemed one business year of that dissolved domestic corporation.

(3) Where a domestic corporation undergoes restructuring pursuant to any subparagraph of Article 78 during a business year, it shall be deemed that the business year before the restructuring of corporation continues.

(4) The business year of a domestic corporation in the course of liquidation shall be deemed one business year by the following classifications:

1. Where the value of residual assets is determined during the business year: The period from the start date of the business year until the date the value of residual assets is determined;

2. Where the domestic corporation continues its business pursuant to Article 229, 285, 287-40, 519, or 610 of the Commercial Act: The following periods:

(a) The period from the start date of the business year until the registration date of continuation (referring to the date of actual continuation of business where continuation is not registered; hereinafter the same shall apply) ;

(b) The period from the day following the registration date of continuation until the end date of the business year.

(5) Where a domestic corporation is subject to a consolidated tax return system during a business year, the period from the start date of the business year to the date preceding the start date of the consolidated business year shall be deemed one business year.

(6) Where a foreign corporation with a domestic place of business ceases to have the domestic place of business during a business year, the period from the start date of the business year until the date it ceases to have the place of business shall be deemed one business year: Provided, That the same shall not apply where it continues to have another place of business in the Republic of Korea.

(7) Where a foreign corporation with no domestic place of business reports to the head of the tax office having jurisdiction over the place of tax payment the fact that it no longer has the domestic source income accrued from the real estate referred to in subparagraph 3 of Article 93 or the domestic source income accrued from transfer of real estate, etc. referred to in subparagraph 7 of the same Article, the period from the start date of the business year to the filing date of such report shall be deemed one business year.

[This Article Wholly Amended on Dec. 30, 2010]

Article 9 (Place of Tax Payment)

(1) The place where a domestic corporation shall pay its corporate tax shall be the place where its registered headquarters or main office is located (the location of the actual business management place where no headquarters or main office is located in the Republic of Korea) : Provided, That for an organization deemed a corporation, it shall be the place prescribed by Presidential Decree.

(2) The place where a foreign corporation shall pay its corporate tax shall be the place where its domestic place of business is located: Provided, That for a foreign corporation with no domestic place of business which earns income referred to in subparagraph 3 or 7 of Article 93, it shall be the location of each of its assets.

(3) Where a foreign corporation falling under paragraph (2) has at least two domestic places of business, the location of the main place of business prescribed by Presidential Decree shall be the place of tax payment, and where a corporation has at least two assets, the place prescribed by Presidential Decree shall be the place of its tax payment.

(4) The place where corporate tax withheld under Article 73, 73-2, 98, 98-3, 98-5 or 98-6 shall be the location of the relevant person liable for withholding prescribed by Presidential Decree: Provided, That where a person liable for withholding referred to in Article 98 or 98-3 has no domestic place of business, it shall be the place prescribed by Presidential Decree.

[This Article Wholly Amended on Dec. 30, 2010]

Article 10 (Designation of Place for Tax Payment)

(1) Where the commissioner of the competent regional tax office (referring to the commissioner of a regional tax office prescribed in Article 12; hereinafter the same shall apply) or the Commissioner of the National Tax Service deems that the place of tax payment determined under Article 9 is inappropriate for a corporation in circumstances prescribed by Presidential Decree, he/she may designate a place of tax payment, notwithstanding Article 9.

(2) Where the commissioner of the competent regional tax office or the Commissioner of the National Tax Service designates a place of tax payment under paragraph (1) , he/she shall give a notice to the relevant corporation, as prescribed by Presidential Decree.

[This Article Wholly Amended on Dec. 30, 2010]

Article 11 (Alteration of Place of Tax Payment)

(1) Where a corporation's place of tax payment is altered, the corporation shall report such fact to the head of the tax office having jurisdiction over the new place of tax payment within 15 days from the date of the alteration, as prescribed by Presidential Decree. In such cases, where a corporation of which the place of tax payment has been altered has reported the alteration under Article 8 of the Value-Added Tax Act, the alteration of the place of tax payment shall be deemed reported.

(2) Where no report is filed under paragraph (1) , the former place of tax payment shall be a corporation's place of tax payment.

(3) Where a foreign corporation ceases to have a domestic place of tax payment falling under Article 9 (2) , it shall report such fact to the head of the tax office having jurisdiction over the place of tax payment.

[This Article Wholly Amended on Dec. 30, 2010]

Article 12 (Jurisdiction of Taxation)

C

orporate tax shall be imposed by the head of the tax office having jurisdiction over the place of tax payment prescribed in Articles 9 through 11 or the commissioner of a regional tax office.

[This Article Wholly Amended on Dec. 30, 2010]

CHAPTER II CORPORATE TAX ON INCOME OF DOMESTIC CORPORATION FOR EACH BUSINESS YEAR

SECTION 1 Tax Base and Calculation Thereof >

Subsection 1 Common Provisions >

Article 13 (Tax Base)

(1) The corporate tax base on the income of a domestic corporation for each business year shall be calculated by deducting the following amounts and income in the following order from the income earned for each business year: Provided, That, the maximum deductible amount under subparagraph 1 shall be 60/100 of the income for each business year (but 100/100 for a corporation prescribed by Presidential Decree, including a small and medium enterprises referred to in Article 5 (1) of the Restriction of Special Taxation Act (hereinafter referred