SOUTH KOREA Law and Practice Contributed by: Young Joon Chun, Kyu Dong Kim, Yong Whan Choi and Hyeon Jeong, Yulchon LLC
1. Corporate Structures, Residence and Tax Treatment 1.1 Corporate Forms and Their Tax Treatment Under the Korean Commercial Code (KCC), the fol - lowing types of legal entities are recognised in Korea. • Jusik Hoesa – a corporation incorporated by one or more promoters, with each shareholder’s liability limited to the amount of contributed capital. This is the type of entity most commonly used in Korea. • Yuhan Hoesa – a corporation incorporated by one or more members, with each member’s liability limited to the amount of contributed capital. • Yuhan Chaegim Hoesa – a corporation incorporat - ed by one or more members, with each member’s liability limited to the amount of contributed capital. A Yuhan Chaegim Hoesa provides more flexibility and self-control than a Yuhan Hoesa . • Hapmyeong Hoesa – a corporation incorporated jointly by more than two members who are respon - sible for corporate obligations if the assets of the corporation are not sufficient to fully satisfy such obligations. • Hapja Hoesa – a corporation composed of one or more partners with unlimited liability and one or more partners with limited liability. All of the above entities are generally taxed as sepa - rate legal entities. However, Hapmyeong Hoesa and Hapja Hoesa can elect to be treated as transparent for Korean tax purposes, thereby becoming subject to the Korean partnership tax regime. 1.2 Use and Taxation of Transparent Business Structures In Korea, entities that are not a corporation and have an agreed method of distributing profits between members (ie, association, foundation, Johap under the Korean Civil Code, and Hapja Johap or Ikmyeong Johap under the KCC) are tax-transparent entities. A Johap is similar to a partnership in concept. Trusts formed by a contractual arrangement are generally treated as tax-transparent entities. In addition, Hapmyeong Hoesa and Hapja Hoesa – which are incorporated entities – may choose to be treated as partnerships that are transparent for tax
purposes. Under Korean tax law, partnerships are exempt from tax at the partnership level, but each partner is subject to tax on earned income distributed from the partnership. 1.3 Tests for Determining Tax Residence According to the Korean Corporate Income Tax Law, a corporation that has its head office or principal office in Korea is a resident corporation. A corporation with a place of effective management in Korea is also treated as a resident corporation. The place of effective management refers to the place where the key management and commercial decisions that are necessary for the conduct of the entity’s busi - ness are made in substance. The determination of the place of effective management is based on all relevant facts and circumstances. 1.4 Applicable Corporate and Individual Tax Rates The applicable corporate income tax (CIT) rates are as follows: • taxable income under KRW200 million – 10% (rate including local income tax: 11%); • taxable income of KRW200 million to KRW20 bil - lion – 20% (22%); • taxable income of KRW20 billion to KRW300 billion – 22% (24.2%); and • taxable income over KRW300 billion – 25% (27.5%). In addition, the income of businesses owned by indi - viduals directly (sole proprietorships) is taxed at the owner’s personal income tax (PIT) rates, as follows: • taxable income under KRW14 million: 6% (rate including local income tax: 6.6%); • taxable income of KRW14 million to KRW50 million – 15% (16.5%); • taxable income of KRW50 million to KRW88 million – 24% (26.4%); • taxable income of KRW88 million to KRW150 mil - lion – 35% (38.5%); • taxable income of KRW150 million to KRW300 mil - lion – 38% (41.8%);
537 CHAMBERS.COM
Powered by FlippingBook