SOUTH KOREA Law and Practice Contributed by: Young Joon Chun, Kyu Dong Kim, Yong Whan Choi and Hyeon Jeong, Yulchon LLC
2.4 Loss Relief Under Korean tax law, tax losses can be carried for - ward for 15 years, although annual utilisation is capped at 80% of annual taxable income (with an exception granted for SMEs and distressed companies). 2.5 Deduction of Interest Interest expense deductions are subject to the follow - ing limitations: • the thin capitalisation rule – interest exceeding the 2:1 (debt to equity) threshold will not be deductible and will be treated as a dividend; and • the 30% interest limitation rule – if the ratio of net interest paid to a foreign related party by a Korean company to adjusted net income (ie, earnings before interest, taxes, depreciation and amortisa - tion) exceeds 30%, the excess interest will not be deductible. 2.6 Consolidated Tax Grouping Before 2024, consolidation was available for a domes - tic parent company and its directly or indirectly wholly owned domestic subsidiaries. For fiscal years com - mencing on or after 1 January 2024, the shareholding requirement is eased to 90%. A taxpayer may elect the consolidated tax filing regime upon approval from the tax authority, but such election cannot be revoked for five years. 2.7 Capital Gains Capital gains are generally taxed at the same CIT rate as ordinary taxable income. However, capital gains from the sale of non-business purpose real estate are subject to additional capital gains tax of 10%, which can rise to as much as 40% for certain properties. 2.8 Other Taxes on Transactions Value-added tax (VAT) is imposed on the supply of goods and services. The applicable VAT rate is gener - ally 10%, but zero-rated VAT is available for exported goods and services rendered outside Korea and for certain services provided to a non-resident in a foreign currency. If a company carries on a VAT-able business in Korea, it must register its business under the VAT Act, file a quarterly VAT return and pay all VAT col - lected from its customers during the relevant quarter, minus any VAT credit to which it is entitled (input VAT).
• taxable income of KRW300 million to KRW500 mil - lion – 40% (44%); • taxable income of KRW500 million to KRW1 billion – 42% (46.2%); and • taxable income over KRW1 billion – 45% (49.5%).
2. Corporate Tax Regime 2.1 Taxable Profits
In determining taxable income for CIT purposes, expenses (including interest expenses, depreciation and general administrative expenses, such as rental expenses) that are reasonably connected with a com - pany’s business can be deducted from the company’s taxable income. Taxable income is based on the accounting prof - its, and adjustments are made for tax purposes, as required by the Korean Corporate Income Tax Law. 2.2 Technology Investments The Special Tax Treatment Control Law provides various tax incentives to stimulate R&D activities. Tax credits are available for qualifying R&D expenditures used for research and workforce development. In addition, until the end of 2026, a 50% CIT credit is provided for income resulting from the transfer of pat - ents and eligible technology by SMEs. Until the end of 2027, a 5% tax credit (up to the value of acquired technology) is also provided to qualifying domestic companies acquiring technology-innovative SMEs. 2.3 Special Incentives In accordance with the BEPS initiatives, most of the direct tax incentives and benefits previously available for foreign direct investment were abolished by the Korean government under the 2019 tax reform. How - ever, the existing local tax and indirect tax incentives are maintained for qualifying foreign investors. Foreign investors are entitled to an exemption from acquisi - tion tax and property tax on property acquired and owned for up to 15 years, and to an exemption from customs duties, VAT and individual consumption tax on imported capital goods.
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