SOUTH KOREA Law and Practice Contributed by: Young Joon Chun, Kyu Dong Kim, Yong Whan Choi and Hyeon Jeong, Yulchon LLC
3. Corporations and Non-Corporate Businesses 3.1 Form of Closely Held Local Businesses The majority of closely held businesses, such as convenience stores and hair salons, operate in non- corporate form, but most businesses operate in cor - porate form. 3.2 Individual and Corporate Rates In general, CIT rates are lower than PIT rates. How - ever, many individual professionals and businesses choose not to incorporate, so as to avoid subjecting earnings already taxed at the corporate level to double taxation when dividends are paid. 3.3 Restrictions on Retention of Earnings by Closely Held Corporations See 2.9 Other Notable Taxes . 3.4 Taxation of Individuals on Shares in Closely Held Corporations Dividends paid to an individual shareholder are sub - ject to a withholding tax of 15.4% (inclusive of local income tax). However, if an individual shareholder’s total financial income (interest income + dividends) exceeds KRW20 million per year, the excess is taxed at regular PIT rates. In addition, dividends paid on or after 1 January 2026 by listed companies with a high dividend payout ratio are eligible for reduced PIT rates ranging from 15.4% to 33%, which are lower than the regular PIT rates. Capital gains arising from the sale of shares in an unlisted SME are subject to 11% capital gains tax (22% for unlisted non-SME shares), inclusive of local income tax. Individual shareholders who have a sub - stantial ownership interest and realise capital gains from the sale of shares in an unlisted company are subject to 22% capital gains tax for taxable income up to KRW300 million and 27.5% for taxable income over KRW300 million (a 33% flat rate applies to unlisted non-SME shares held by major shareholders for less than one year before their sale).
Customs duties are generally imposed on imported goods. Importation means the delivery of goods into Korea to be consumed or used in Korea. Acquisition tax is imposed on the purchase price of real estate, motor vehicles, construction equipment, golf memberships, etc. The acquisition tax rate varies depending on the type of assets. Where an investor acquires shares in a company and becomes a controlling shareholder of such company (ie, the investor and its related parties collectively own, in the aggregate, more than 50% of the shares of the company) as a result of the share acquisition, such investor is deemed to have acquired the real estate, etc, held by the company and is generally subject to deemed acquisition tax of 2.2% (including surtax). Securities transaction tax is imposed on the transfer of shares. The securities transaction tax rate for publicly traded shares is 0.2%, and the tax rate for unlisted shares is 0.35%. A special excise tax is levied on the production or trading of certain luxury items, alcohol and tobacco. In addition, property tax (a local tax) is charged on the statutory value of land, buildings, houses, vessels and aircraft, while comprehensive real estate holding tax (a national tax) is charged on the aggregate published value of land, buildings and houses exceeding a cer - tain threshold. 2.9 Other Notable Taxes Accumulated earnings tax (AET) is applicable to Korean corporations that are designated as large con - glomerates under the Monopoly Regulation and Fair Trade Act. The AET imposes additional income tax at the rate of 22% (inclusive of local income tax) on corporate earnings that are not utilised for prescribed purposes (eg, designated investments, employee salaries, employee welfare funds). The AET regime remains in effect until the fiscal year including 31 December 2028.
539 CHAMBERS.COM
Powered by FlippingBook