The Inward Investment and International Taxation Review: South Korea


Inward investment into South Korea has thrived in the past few decades and foreign investors have been able to benefit from various tax incentives available to them. Although these incentives are becoming available on a more selective basis, the overall legal, tax and regulatory climate for investment into South Korea remains favourable to foreign investors.

Common forms of business organisation and their tax treatment

i Corporate

The two most common types of legal entities under the Korean Commercial Code (KCC) are the joint-stock company (JSC) and limited liability company (LLC). The JSC is the most common form of incorporation and refers to a joint-stock company governed by a board of directors with limited liability to its shareholders. A JSC with paid-in capital of 1 billion won or more must have at least three directors and one statutory auditor, whereas a JSC that does not meet the paid-in capital threshold is required to have at least one director and is not required to have a statutory auditor. Other than certain matters conferred by law or in the articles of incorporation of the company (AOI) to the authority of the general meeting of shareholders, the board of directors may make decisions on all important corporate policies and management matters, except for regular day-to-day business matters that are decided by the representative director. Unless otherwise provided in the AOI, all actions and resolutions of the board are adopted by the affirmative vote of a majority of the directors attending a properly constituted board meeting. The JSC is typically appropriate for a large enterprise that will need substantial capital, as it is the only type of legal entity eligible to list its shares on the Korea Stock Exchange or to issue corporate bonds.

In contrast, an LLC is a closely held limited liability company, which can be described as a mixture of a joint-stock company and a partnership. Like a joint-stock company, the liability of each member is limited to the amount of his or her contribution to the company. This form of legal entity is typically appropriate for small or medium-sized businesses owned by a small number of individuals or entities. An LLC is required to have at least one director regardless of its size. An LLC is also subject to other limitations that a JSC may not be subject to. Foreign investors have increasingly utilised this structure, mainly for the reason of potential tax advantages in their home countries. In addition, an LLC allows (in comparison to a JSC) greater flexibility in terms of corporate governance. For those foreign investors or persons desiring less public disclosure, the LLC may be preferred because such companies are not required to publicly disclose their financial information.

The tax implications and liabilities under Korean law for a JSC and an LLC are nearly identical. Both a JSC and an LLC are subject to taxation in Korea. The current applicable corporate tax rate is 11 per cent for taxable income up to 200 million won, 22 per cent for income over 200 million won and up to 20 billion won, 24.2 per cent for income over 20 billion won and up to 300 billion won, and 27.5 per cent for income over 300 billion won.

ii Non-corporate

In general, non-corporate entities are not as commonly used as corporate entities given that the shareholders are exposed to unlimited liability. A partnership organised by two or more partners bears unlimited liability for the obligations of the partnership. A limited partnership, consists of one or more partners having unlimited liability and one or more partners having limited liability. From a commercial law perspective, a partnership and a limited partnership are both treated as corporations. From a tax law perspective, a partnership and a limited partnership are subject to corporate income tax but may elect to be treated as partnerships, in which case these entities are treated as pass-through entities for tax purposes.

Under the Korean tax law, tax is exempt at the level of the partnership and each partner is required to pay and file taxes on earned income distributed from the partnership. If the partner is a non-resident, income distributed from the partnership will be subject to withholding tax in Korea.

A private equity fund (PEF) is considered a corporation for Korean tax purposes but may elect to be treated as a partnership for tax purposes. A PEF electing to be treated as a partnership is taxed at the level of the members at the time of income allocation. Income allocated to the foreign limited partnerships by the PEF will generally be regarded as dividend income regardless of the character of the underlying income.

Direct taxation of businesses

i Tax on profits

Determination of taxable profit

Korean corporations are subject to tax on their worldwide income. Corporate income tax is imposed on a company's taxable income, which is based on the net income after making book to tax adjustments, less deductible expenses and carried forward tax losses. Expenses incurred in the ordinary course of business are deductible, subject to the requirements for documentary support and accrued expenses are not deductible until the expenses are fixed or determined. Depreciation is allowed for tax deduction only when expensed for book purposes.

The tax law allows the following methods for calculating depreciation:

  1. straight-line or declining-balance method for tangible fixed assets, other than plants and buildings;
  2. straight-line method for plants, buildings and intangible assets;
  3. service-output or straight-line method for mining rights; and
  4. service-output, declining-balance or straight-line method for tangible fixed assets used in mining.

Capital and income

In general, there is no distinction between the taxation of income and capital profit for resident corporations, as capital gains are included in taxable income and taxed at the standard corporate income tax rates. Korean-source capital gains derived by a non-resident are taxed at the lesser of 11 per cent (including local surtax) of the sales proceeds received or 22 per cent (including local surtax) of capital profit.


Losses being incurred on or after 1 January 2020 may be carried forward for up to 15 years (previously 10 years) and fully deducted against taxable income in subsequent years. Domestic companies and foreign companies may utilise their tax loss carry-forwards to offset 60 per cent of taxable income for a fiscal year. Small and medium-sized enterprises and certain designated companies may utilise their tax loss carry-forwards to offset 100 per cent of taxable income and to carry losses back for one year.


The corporate income tax rates (effective 1 January 2018) are as follows:

Taxable incomeTax rate (progressive) (%)
Up to 200 million won10
From 200 million won to 20 billion won20
From 20 billion won to 300 billion won22
In excess of 300 billion won25

In addition, there is a local surtax of 10 per cent on the foregoing rates resulting in the final rates ranging from 11 per cent to 27.5 per cent on the tax base.


A Korean company is required to pay: (1) interim corporate income taxes within two months from the end of the first six months of the fiscal year; and (2) annual corporate income taxes within three months from the end of the fiscal year. The company must file tax returns along with the tax payment for the interim and annual corporate income taxes.

Tax grouping

A domestic parent corporation with wholly owned domestic subsidiaries may elect the consolidated tax group scheme for domestic entities. Where two or more wholly owned subsidiaries exist, the tax consolidation scheme must be applied to all subsidiaries. A corporation seeking tax consolidation is required to submit an application for consolidated tax return filing within 10 business days after the beginning of a business year in which the taxpayer wishes to apply tax consolidation. Foreign subsidiaries are not eligible for tax consolidation. Once the consolidated tax grouping scheme is elected, the scheme must be applied for at least five consecutive business years.

Dividend distributions within the tax group do not trigger any tax costs. Donations or entertainment expenses incurred within the tax group are consolidated for tax reporting purposes.

ii Other relevant taxes

Value added tax (VAT) is levied at the rate of 10 per cent on the sale of goods and services in Korea, including imported goods, subject to certain exceptions. A business that sells or provides goods or services to its customers is required to, on a quarterly basis, pay to the competent tax office value-added tax (output VAT) received from such customers. The amount of output VAT to be actually paid to the tax office is the sum of the output VAT received from its customers minus the value-added tax (input VAT) that such business paid to its suppliers for the purchase of good or services ('input VAT deduction').

Stamp duty is levied on agreements relating to the creation, transfer or alteration of rights.

A capital registration tax of 0.48 per cent (including local surtax) is levied when a company registers its incorporation or capital increase with the court registry. The capital registration tax rate for a company incorporated in the Seoul Metropolitan Area triples to 1.44 per cent.

Securities transaction tax is levied on the transfer price of listed shares at 0.08 per cent for shares listed in the KOSPI, 0.23 per cent for shares listed in the KOSDAQ and 0.1 per cent in the case of KONEX stocks. The rate is increased to 0.43 per cent for the transfer of unlisted shares. From 1 January 2023 onwards, securities transactions tax will be levied at 0.15 per cent for transfer of KOSDAQ stocks.

A company owning real property such as land, buildings, ships and aircraft is subject to property tax on these assets at the rate of 0.1 per cent to 4 per cent, depending on the type of property. Comprehensive real estate tax is also levied on real estate.

Acquisition tax is levied on any company acquiring real estate, motor vehicles, heavy equipment and certain other items generally at the rate of 1.1 per cent to 4.6 per cent (including local surtax). This tax rate can be tripled for property located in the Seoul Metropolitan Area.

A company is required to withhold taxes on payments to its employees, including wages, salaries, bonus and other amounts received for employment services rendered. An employer is required to make social security contributions for national pension, medical insurance, unemployment insurance and industrial injury compensation insurance to the relevant social security authorities. Social security contribution rates vary depending on the number of employees and the industry.

Tax residence and fiscal domicile

i Corporate residence

A foreign corporation with its place of effective management in Korea may be deemed as a domestic corporation. The place of effective management refers to a location where key management and commercial decisions necessary for business operations are implemented. Key management activities and commercial decisions necessary for the operation of a corporation's business relate to a corporation's long-term business strategies, fundamental policies, corporate finance and investment, management and disposal of key properties, and essential income-generating activities. The place of effective management of a corporation is determined on a case-by-case basis, by taking into account the location where meetings of the board of directors or other equivalent decision-making body are held, location where the chief executive officer and other officers perform their day-to-day duties, location where senior managers perform their daily management activities and location where accounting records are generally maintained (Supreme Court Decision, 2014Du8896, 14 January 2016).

To avoid becoming fiscally resident in Korea, a foreign entity should ensure that key management activities and commercial decisions are not made in Korea, including holding meetings where key decisions are made or maintaining books or other important business documents of the foreign entity.

ii Branch or permanent establishment

A non-locally incorporated entity is deemed to have fiscal presence in Korea if: (1) it has a fixed place of business (a branch, an office, a workshop, etc.) in Korea where the entity's business is wholly or partly carried on; or (2) the employees of the foreign entity provide services in Korea for more than six months during any consecutive 12-month period or the employees render similar types of services continuously or repetitively over a two-year period, even if each of the service periods do not exceed six months in a consecutive 12-month period. A fixed business place of a foreign company does not trigger a permanent establishment (PE) if its activities are of a preparatory or auxiliary nature on behalf of its head office, such as advertising, collecting and distributing information, or market research. On the other hand, preparatory or auxiliary activities that are carried out on behalf of third parties (including affiliated parties) would give rise to PE in Korea.

In addition to the above, a foreign company without a branch office or other fixed presence in Korea may nevertheless be deemed to have a PE in Korea if it conducts business in Korea through a person who has authority on its behalf to conclude contracts (or to negotiate important and detailed terms and conditions of contracts) and regularly exercises this authority. Such persons will constitute 'dependent agents', so long as their role is sufficiently important for the local business of the foreign company. A foreign company that conducts business in Korea through a dependent agent in Korea is deemed to have a PE in Korea for tax purposes. On the other hand, if a foreign company carries on business through a broker, general commission agent or any other agent of independent status and the agent acts in the ordinary course of its business, the foreign company would not on that basis be deemed to have a PE in Korea.

An entity deemed to have a PE in Korea is subject to corporate income taxation in Korea with respect to the portion of its business profits attributable to the PE. An arm's-length amount of profit may be allocated in accordance with the transfer pricing methodologies stipulated in the Korean tax law. Given the inherent limitations in allocating an arm's-length price, issues often arise regarding profit allocation and may eventually lead to a tax imposition.

From 1 January 2022, liaison offices will be subject to certain essential reporting requirements with the tax office, including basic information about the liaison office and its representative, status of the foreign head office and other Korean branch offices, as well as information on Korean transacting parties.

With regard to dual resident entities, a majority of the tax treaties signed by Korea include a provision that deems the entity to be a resident of a country where effective management takes place. Tax treaties generally allow competent authorities of the treaty parties to reach mutual agreement to resolve dual residency issues.

If the tax treaty between Korea and the country in which a foreign corporation resides allows the imposition of a branch profits tax, the tax is imposed on the adjusted taxable income of the Korean branch. Where applicable, the branch profits tax is levied in addition to the regular corporate income tax, at the rate of 20 per cent (or at a reduced rate as provided in a treaty) of the adjusted taxable income of the Korean branch.

Tax incentives, special regimes and relief that may encourage inward investment

i Holding company regimes

A qualified domestic holding company that owns more than 40 per cent share ownership in its domestic stock-listed subsidiary will receive a 100 per cent deduction for dividends, while a 90 per cent deduction is allowed for share ownership of 40 per cent or less and an 80 per cent deduction is allowed for share ownership of 30 per cent or less. A qualified domestic holding corporation that owns a subsidiary other than a stock-listed company will also receive a 100 per cent deduction for share ownership of more than 80 per cent, 90 per cent for share ownership of 80 per cent or less and 80 per cent for share ownership of 50 per cent or less.

Dividends received from a foreign company are, in principle, subject to corporate income tax in Korea, but the recipient company may be eligible for an indirect foreign tax credit for foreign income tax paid by the foreign company in its country of residence.

ii IP regimes

Foreign-invested companies that engage in certain high-technology businesses designated by the government or that are located in certain designated areas may apply for exemption of customs duties or local taxes if certain conditions are satisfied. Tax credits are also available for certain qualifying expenditures on R&D, and for investments in energy saving, pollution control, vocational training facilities and employee housing.

The Korean tax laws provide various tax incentives to encourage domestic companies to engage in R&D, technology development and job training.

iii State aid

No state aid is available in Korea. However, certain programmes or business activities may be eligible for subsidies. Programmes eligible for subsidies, expense items, rates and amounts of national subsidies available are announced annually during the government budget proposal. Taxpayers seeking subsidies are required to file applications and receive approval from the relevant government agencies.

iv General

Korean subsidiaries of foreign multinationals that meet certain foreign investment requirements and that engage in qualifying business or industry activities in designated Free Enterprise Zones, Free Investment Zones or Free Trade Zones may be eligible for various tax exemptions or reductions. A foreign investor seeking tax exemption or reduction must file an application with the Ministry of Strategy and Finance by the end of the tax year in which the relevant business commences.

Withholding and taxation of non-local source income streams

i Withholding outward-bound payments (domestic law)

Korean-source interest, dividends and royalties that are not attributable to a permanent establishment in Korea are generally subject to a withholding tax of 22 per cent (including local tax) at the time of payment to the foreign person. The statutory rate of withholding may be reduced or eliminated under an applicable tax treaty.

ii Domestic law exclusions or exemptions from withholding on outward-bound payments

No domestic law exclusions or exemptions from withholding on outbound payments exist in Korea.

iii Double tax treaties

Certain income such as dividends, interests or royalties paid to non-residents (Korea-sourced income) are generally subject to withholding tax at the statutory rate of 22 per cent (inclusive of local surtax) if no relevant treaty between the non-resident's country and Korea applies. To enjoy the benefits of a lower rate of withholding tax under a particular treaty, the beneficial owner of the Korea-sourced income is required to submit to the withholding party evidentiary documents demonstrating that the beneficial owner is eligible for the lower rate of withholding tax by virtue of an applicable tax treaty.

According to the constitutional law, tax treaties have the same effect as domestic laws in Korea. In case of a conflict between the tax treaty and the domestic law in Korea, the tax treaty takes precedence over domestic laws. As of November 2019, Korea has entered into tax treaties with 93 countries globally. The chart below is a summary of the reduced tax rates for dividends, interests and royalties under the tax treaties that are currently in force. The applicable domestic withholding tax rates, which vary from 2.2 per cent (including local income tax) to 22 per cent (including local income tax) for cross-border payments made to non-resident individuals or corporations without a permanent establishment in Korea will apply if such rate is lower than the reduced tax rate under the tax treaty or if there is no relevant tax treaty.

 Dividends (%)Interest (%)Royalties (%)
Domestic rates
Treaty countries
Treaty countries
Czech Republic5/101010
Hong Kong10/151010
Treaty countries
New Zealand151010
Papua New Guinea151010
Saudi Arabia5/1055/10
South Africa5/151010
Sri Lanka10/151010
United Arab Emirates5/10100
United Kingdom5/15102/10
United States10/151210/15

iv Taxation on receipt

Non-local dividends and income received from non-Korean sources are generally included in the income tax base of the recipient and subject to tax. Dividends attributable to investors resident in Korea are, in principle, subject to corporate income tax at progressive tax rates of 11 per cent (for taxable income up to 200 million won), 22 per cent (for taxable income from 200 million won to 20 billion won), 24.2 per cent (for taxable income from 20 billion won to 300 billion won) and 27.5 per cent (for taxable income in excess of 300 billion won). Taxes imposed by foreign governments on income recognised by a resident taxpayer are allowed as a credit within the limit against the income taxes to be paid in Korea or as deductible expenses in computing the taxable income. From 1 January 2021, excess foreign tax credits may be carried forward for up to 10 years.

Taxation of funding structures

Entities are commonly funded through either debt, equity or both. Although dividends are not tax-deductible, interest expenses incurred in the course of borrowing, including guarantee fees and bank fees, may be deducted for tax purposes.

i Thin capitalisation

Interest incurred in the normal operation of a business is, in general, recognised as a tax-deductible expense as long as the relevant loan is used for business purposes. A shareholder loan extended by a foreign parent company to its Korean subsidiary, however, is subject to the thin capitalisation rule, whereby any interest paid on the shareholder loan in excess of two times the paid-in capital of such Korean company contributed by such foreign parent company (in the case where the Korean company is a financial institution, six times the paid-in capital) cannot be recognised as a tax-deductible expense and will be subject to corporate tax. Furthermore, the excess amount of the interest will be deemed as a dividend and subject to withholding tax at the statutory rate of 22 per cent (inclusive of local surtax).

Interest expense paid by a Korean company with respect to intercompany loan transactions with overseas related parties in excess of 30 per cent of the 'adjusted taxable income' (i.e., taxable income before depreciation and net interest expenses) cannot be recognised as tax-deductible expenses and will be subject to corporate tax.

As a result of the introduction of the Organisation for Economic Co-operation and Development (OECD) rule on limitation of interest, the rule that imposes a higher tax burden (i.e., recognition of lower tax-deductible expenses) applies between the thin capitalisation rule and the OECD rule.

ii Deduction of finance costs

Interest payments and other borrowing costs are generally tax deductible. Interest incurred in the ordinary course of business is deductible as long as the related loan is used for business purposes. There are, however, a number of exceptions to the general rule, as follows, where the interest payments will not be tax deductible:

  1. with respect to any borrowings from a foreign shareholder, or from a third party under a payment guarantee by the foreign shareholder, that exceed two times (six times for financial companies) the equity of the relevant foreign shareholder, any such excess interest and discount fees are non-deductible and are re-characterised as dividends (thin capitalisation rule);
  2. net interest in excess of 30 per cent of the adjusted taxable income for all related-party loans will be non-deductible from 1 January 2019;
  3. debentures for which the creditor is unknown;
  4. bonds and securities on which the recipient of interest is unknown;
  5. construction loans and loans for the purchase of land and fixed assets up to the date on which the assets are acquired or completed must be capitalised as part of the cost of the asset and depreciated over the life of the asset, whereas interest incurred after the date of completion or acquisition is deductible; and
  6. interest on loans related to non-business purpose assets or funds loaned to related parties.

For foreign corporations without a permanent establishment, interest payments and other borrowing costs are not deductible.

iii Restrictions on payments

There are no specific restrictions on payment of dividends. Under the Korean commercial law, however, a company may pay dividends within the limit of the value of net assets stated on the balance sheets after deducting the amount of capital and reserves. In such respects, there is a limitation on the amount of dividends payable.

iv Return of capital

Return of capital is not permitted and equity capital can be repaid by way of a reduction. Reduction on a pro rata basis based on the ratio of holdings by shareholders would generally not trigger any tax implications. If the repurchase price of the shares exceeds the initial acquisition price of such shares, the differential between the repurchase price and acquisition price would be deemed as dividends and subject to dividend income taxation.

Acquisition structures, restructuring and exit charges

i Acquisition

Non-local companies acquiring local businesses commonly structure the transaction by using local holding companies as a vehicle for acquisition of the local business. Although buyers may use debt or equity or both to fund their investment, investors generally prefer the use of debt, as this allows the local company to deduct any interest expenses incurred on its borrowings against its taxable income within certain limits prescribed under the tax law. In such cases, the interest rates on borrowings from related parties should be set at an arm's-length rate. Investors should also take into consideration thin capitalisation and interest limitation rules discussed in Sections VII.i and ii.

ii Reorganisation

For a merger that meets all of the following requirements, capital gains or losses may be tax-exempt if:

  1. a merger is conducted between domestic corporations that have continued to operate their business for at least one year as of the registration date of the merger, provided that the corporation is not established solely for purposes of merging with other corporations;
  2. the value of the stocks of a surviving corporation or the parent corporation of the surviving corporation is at least 80 per cent of the total costs of the merger received by the stockholders of a merged corporation in return for such merger;
  3. the stocks are distributed in proportion to the equity ratio of each relevant stockholder in the merged corporation;
  4. the controlling stockholders of the merged corporation hold such stocks until the last day of the business year in which the registration date of the merger falls;
  5. the surviving corporation continues to operate the business of the merged corporation until the last day of the business year in which the registration date of the merger falls; and
  6. the surviving company continues to employ more than 80 per cent of the merged company's employees as of the last day of the business year in which the registration date of the merger falls.

If wholly owned subsidiaries are merged into a parent company or merged with each other, the merger may be implemented on a tax-free basis even if the above conditions are not satisfied, provided that both are domestic companies.

However, the tax-free benefits for a qualified merger may be 'clawed-back' if assets or shares of the surviving company are disposed of within two to three years after the merger.

iii Exit

There are no specific tax penalties associated with a business relocating outside of Korea. Entities seeking to close their Korean operations would be required to liquidate and dissolve the Korean entity and file final tax returns.

Anti-avoidance and other relevant legislation

i General anti-avoidance

The Korean tax law provides for a 'substance-over-form' rule that allows a transaction that meets formality requirements to be re-characterised based on its substance. Under the 'substance-over-form' rule, each transaction under a series of transactions undertaken for no purpose other than tax avoidance may be re-characterised for tax purposes to reflect the substance of such series of transactions.

ii Controlled foreign corporations

Pursuant to the Korean tax laws, a Korean resident who owns, directly or indirectly, 10 per cent or more of the outstanding shares of a controlled foreign corporation (CFC) at the end of each taxable year is taxed directly on the pro rata portion of the distributable retained earnings of the CFC as deemed dividends, even if the CFC does not distribute the income. Where a CFC actually distributes its retained earnings as dividends subsequent to the taxation of this amount as deemed dividends, the distributed amount is excluded from the scope of deemed dividends.

A CFC is defined as a foreign corporation meeting the following conditions: (1) the foreign corporation has a head or principal office located in a country or region in which the effective tax rate on the income actually earned by the corporation is 15 per cent or less; (2) the foreign corporation has a special relationship with a Korean resident; and (3) such Korean resident directly or indirectly owns 10 per cent or more of the foreign company's outstanding shares at the end of each taxable year. From 1 January 2022, the threshold effective tax rate will increase to 70 per cent of the maximum corporate income tax rate of 25 per cent, which results in an effective tax rate of 17.5 per cent or less.

There are two main exceptions to the CFC rules: the active business operation exception and the qualified holding company exception. Under the active business operation exception, the CFC rules do not apply if the foreign company has an office, shop, factory or other fixed facility in the foreign country through which it actually engages in business operations. Even in this case, however, where more than 50 per cent of the foreign subsidiary's gross income consists of passive income derived from holding shares or receivables, granting use of intellectual property rights, leasing ships, airplanes or facilities, or investing in investment trusts or funds, the active business operation exception is not available and the CFC rule applies. From 1 January 2021, income derived from the sale of such assets – with the exception of capital gains realised from the sale of ships, airplanes or equipment used directly in the business of the foreign company – are included within the scope of passive income. Where passive income consists of between 5 per cent and 50 per cent of the foreign subsidiary's gross income, the CFC rule will apply with respect to such passive income. Dividends are excluded in calculating the amount of passive income if they are derived from shares issued by the company that is 10 per cent or more owned by a CFC. Under the qualified holding company exception, the CFC rules do not apply if the subsidiaries of the foreign holding company, which are located in the same country or region as the foreign holding company, have held stocks issued by its affiliates for at least six consecutive months from the date of dividend distribution and the passive income derived by the foreign holding company from subsidiaries located in the same country or region constitutes 90 per cent or more of the foreign holding company's total income (excluding income derived from the conduct of active business).

iii Transfer pricing

The Korean transfer pricing regulations are based on the arm's-length standard and are generally consistent with OECD guidelines. The Korean transfer pricing regulations prescribe transfer pricing methods, impose transfer pricing documentation requirements, and contain provisions for advance pricing agreements and mutual agreement procedures.

The Korean transfer pricing regulations stipulate that transfer prices should be consistent with the arm's-length standard. The transfer pricing methods stipulated in the Korean tax laws are as follows: (1) comparable uncontrolled price method, resale price method or cost-plus method; (2) profit split method and transactional net margin method; and (3) other unspecified methods.

The most appropriate and reliable method should be adopted among the methods above considering all relevant factors and circumstances.

iv Tax clearances and rulings

Advance tax rulings may be obtained prior to completing a corporate transaction through a formal advance tax ruling system established by the National Tax Service. When seeking an advance ruling, the party seeking the ruling must disclose its identity and all the relevant facts applicable to the transaction. Although tax clearances or rulings are not required to acquire a local business, a taxpayer conducting international transactions with foreign parties is required to disclose such transactions by submitting a statement of international transactions to the relevant district tax office by the deadline for filing a tax return.

Year in review

The Korean tax changes to PE legislation and aggressive challenges on offshore tax evasion by the Korean tax authorities have continued to increase the level of scrutiny on foreign businesses with business activity in Korea. Because of the challenges created by the covid-19 pandemic, however, the main focus of the Korean tax authorities has been concentrated on larger corporations that have continued to perform well throughout the pandemic.

Outlook and conclusions

The 2021 tax revision bill issued in July 2021 focuses on (1) promoting new industries and supporting recovery by promoting employment, investment and consumption; (2) pursuing inclusive growth, such as through expanded tax support for low-income earners and small enterprises and continuing fair taxation; and (3) improving the tax base and working on taxpayer convenience. These revisions are intended for a successful transition to a post-covid-19 economy.

With national elections coming up early next year and greater relaxation of covid-related economic restrictions, the tax authorities are expected to become more active in pursuing tax audits and investigations in 2022.


1 Sungdoo Jang is a partner and Maria Chang is a senior foreign attorney at Bae, Kim & Lee LLC.

The Law Reviews content