Korea Taxation 2012 최종 - nts.go.kr

1 2012 KOREAN Taxation Ministry of Strategy and Finance Korea ii iii PREFACE Dear readers, The Korean economy emerged from the recent global financial crisis and has been maintaining the momentum of economic recovery. Especially, job markets show positive signs adding 400,000 jobs to the economy in 2011. However, such a favorable atmosphere is not fully felt in the real economy. Downgrading of credit rating, European debt crisis and other external factors are adding uncertainty to the Korean economy. Against this backdrop, the Korean government revised its tax system in 2011 with a view to encouraging job creation and supporting mid and low-income families.

2 To be more specific, first, we realigned our tax system with a view to boosting job creation and expanding tax incentives for R&D and the services sector. Temporary Tax Credit for Investment, which was relatively less investment-inducing, was replaced by Tax Credit for Job-creating Investment. Second, we reinforced our tax system in an effort to stabilize the livelihood of mid and low-income families. More people will benefit from the EITC. Tax incentives will also be given to ensure price stability in the property markets.

3 Last but not least, our tax reform was also aimed at enhancing the fairness of the tax system and strengthening fiscal soundness. We created the grounds for imposing gift tax on conglomerates which place an unproportionate number of orders with their affiliates. Inefficient tax exemptions and reductions were also eliminated. Korean Taxation 2012 covers the tax laws revised by the end of 2011 and correspondingly amended enforcement decrees and rules in early 2012 . I hope that this edition will serve as a useful reference for readers to understand the new tax systems in force from 2012 .

4 Baek, Un-Chan Deputy Minister for Tax and Customs Ministry of Strategy and Finance Republic of Korea iv i Table of Contents Part 1: Introduction chapter I: Tax System in Korea 1. Taxes in Korea ..1 2. Tax Laws and 3. Tax 4. A Brief History of Taxation in 10 Part 2: National Taxes Internal Taxes chapter II: Income Tax 1. Taxpayer ..62 2. Taxable, Non-Taxable, and Tax-Exempt 3. Tax Base and 4. Tax Rates and 5. Tax Returns and 91 6. Tax Assessment and 7.

5 Withholding 8. Penalty Tax ..97 9. Bookkeeping, Reporting and Other 10. Non-Resident Income chapter III: Corporation Tax 1. Taxpayer ..108 2. Place of Tax 3. Taxable and Non-Taxable 4. Tax 5. 6. Avoiding Double Taxation on Dividend Income ..115 ii 7. 8. Tax Rates and 126 9. Tax Returns and 10. Tax Computation, Adjustments, and 11.

6 Withholding 12. Penalty 13. 14. Taxation of Liquidation 15. Consolidated Tax Return System ..137 16. Taxation of Foreign chapter IV: Inheritance & Gift Tax 1. Inheritance 2. Gift chapter V: Comprehensive Real Estate Holding chapter VI: Value Added Tax 1. Taxpayer ..168 2. Taxable 3. Taxable 4. Zero-Rating and 5. Tax Base and 6. Tax Returns and 7.

7 Adjustments, Collection, and 8. Simplified Taxation ..192 chapter VII: Individual Consumption Tax 1. Taxpayer ..194 2. Tax Base ..194 iii 3. Tax 4. Tax Returns and 5. Non-Taxable 6. Tax Credits and chapter VIII: Liquor chapter IX: Stamp chapter X: Securities Transaction Part 3: National Taxes - Earmarked Taxes chapter XI: Transportation Energy Environment chapter XII: Education chapter XIII: Special Tax for Rural Part 4: Tax Payment, Collection, & Disputes chapter XIV: Payment, Collection & Disputes.

8 218 Part 5: Tax Incentives chapter XV: The Special Tax Treatment Control Part 6: International Taxation chapter XVI: Non-Resident Income iv chapter XVII: The Law for the Coordination of International Tax Affairs 1. Transfer Pricing 2. A System Adjusting Taxable Value between National Tax and Tariff ..294 3. Thin Capitalization 4. Controlled Foreign Corporation (CFC) 5. Gift Tax on Property Located Outside 6. Mutual Agreement Procedure (MAP).. 298 7.

9 International Tax Part 7: Local Taxes chapter XVIII: Local Taxes 1. Acquisition 2. Registration & License 3. Leisure 4. Inhabitant 5. Property 6. Automobile 7. Tobacco Consumption 8. Community Resource and Facility 9. Local Education Tax ..321 10. Local Income 11. Local Consumption Tax ..325 Appendix: Summary of Income Taxation for.

10 3261 Part 1: Introduction chapter I: Tax System in Korea 1. Taxes in Korea Taxes in Korea comprise national and local taxes. National taxes are divided into internal taxes, customs duties, and three earmarked taxes; the local taxes include province taxes and city & county taxes as shown below. National Taxes Internal Taxes Income Tax Corporation Tax Inheritance Tax Gift Tax Comprehensive real estate holding Tax Value-added Tax Individual Consumption Tax Liquor Tax Stamp