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Tax

lastmod 2025-10-20created 2025-01-3119 edits

A tax (租稅 or 稅金) is a monetary payment that the state or a local government imposes on everyone who meets the taxation requirements prescribed by law, not only as consideration for a special benefit but also for the purpose of raising funds to cover national expenses.

Taxation also links to this page.

Taxes are collected in money and the like, but sometimes in labor of equivalent value.

By taxing authority, taxes are divided into national taxes and local taxes; by taxation method, into direct taxes and indirect taxes.

Tax accounting

Tax accounting (稅務會計) is the process of measuring taxable income on a company's profit (operating results) according to the provisions of tax law and the accounting standards of financial accounting. Related tax systems include value-added tax, income tax, corporate tax, and local taxes. In particular, the procedure of adjusting the net income calculated through financial accounting to arrive at taxable income for the purpose of calculating corporate tax is called "tax adjustment".

Single-entry vs double-entry bookkeeping

One of the methods for recording accounting books.

Korean: 단식부기 (Single-entry bookkeeping)
Records only cash inflows and outflows
Korean: 복식부기 (Double-entry bookkeeping)
A recording method that also records the causes of cash inflows and outflows and credit transactions.
For this it uses two sides, debit and credit; when a transaction occurs and is recorded in an account, two corresponding entries are made at the same time so that the total of debit amounts always equals the total of credit amounts.

Simplified taxpayer vs general taxpayer

Simplified taxpayer
An individual business with annual sales below KRW 48 million can register as a simplified taxpayer.
General taxpayer
The counterpart of a simplified taxpayer: a business becomes a general taxpayer if its annual sales are KRW 48 million or more or if it is in an industry excluded from simplified taxation.

Direct tax vs indirect tax

Direct tax
A tax where "the person who bears it (consumer)" and "the person who pays it (business)" are the same. Typical examples are inheritance tax and gift tax.
Indirect tax
A tax where "the person who bears it (consumer)" and "the person who pays it (business)" are different. A typical example is VAT.

Types of taxes an individual business must pay

There are three types of taxes that a sole proprietor (or freelancer, Korean: 프리랜서) should know well.

Tax reduction for startup SMEs

Major changes in 2025

:* See (Midas) 2025 tax law amendments and the outlook for startups | Yonhap News

:* The preferential reduction of 25 percentage points that was provided to new growth service industries (information services, video production, tourism, etc.) is scheduled to end from 2025. The Ministry of Economy and Finance explained it as a measure to improve fairness between industries.

:* The additional tax reduction rate for increased employment is also raised from 50% to 100%.

:* An annual cap of KRW 500 million was newly introduced for the tax reduction system. This appears intended to prevent high-income SMEs from abusing the benefit.

:* The expansion of R&D (research and development) tax credits is another key change that promotes the growth of startups. <- Needs verification of the exact details.

:* The tax credit rates were raised by 5 points each from before: 25% for new growth and source technologies, 35% for national strategic technologies, and 20% for general research and human resource development expenses. <- Needs verification of the exact details.

창업중소기업_세액감면_제도_합리화.png

Rationalization of the startup SME tax reduction system (Restriction of Special Taxation Act)

  • To support startups, the application period was extended by 3 years to Dec. 31, '27, and the reduction rate applied when employment increases was raised from 50% to 100%.
  • However, to prevent reductions from being excessively concentrated in particular companies, an annual reduction cap of KRW 500 million was set.
  • The reduction rate for areas of the capital region outside the overcrowding control region, where startup conditions are better than in the provinces, was cut by 50% (general 50%, youth/livelihood 100% → general 25%, youth/livelihood 75%), and to improve fairness between industries, the application period of the preferential reduction rate for new growth service industries (first 3 years +25%p) was ended.
  • Applies to businesses founded on or after Jan. 1, '25
  • ※ The capital region reduction rate adjustment applies to businesses founded on or after Jan. 1, '26

Yellow Umbrella Mutual Aid

Tax credit for research and human resource development expenses

  • Changed from 2025 - When an SME no longer qualifies as an SME due to increased sales or the like, for tax years ending within 3 years from the start date of the tax year in which it ceased to qualify, the tax credit for research and human resource development expenses was raised to 25% for new growth and source technology R&D expenses and 35% for national strategic technology R&D expenses, 5 points higher than for ordinary mid-sized companies, and from 15% to 20% for general research and human resource development expenses.
    • Effective date - (Introduction of a phase-down structure) Applies from cases where a company first ceases to qualify as an SME in a tax year beginning on or after Jan. 1, '25
Q. In what cases can I receive the research and human resource development expense tax credit?
A. If you carry out R&D activities within the scope defined by tax law and have related expenditures, you may be eligible for the credit. You can choose one of two criteria to receive the credit: the expenditure incurred in the current year, or the increase in expenditure over the previous year.
Under tax law, R&D fields are divided into three: science and technology, services, and cultural creation. This covers activities to achieve scientific or technological progress, activities to develop new services and service delivery systems, and creative activities that produce new cultural products or related services.
Q. Can an individual business, not a corporation, also be eligible for the credit?
A. Individual businesses are also eligible. For individual businesses, the credit is applied against income tax. In practice it is mostly corporations that use research institutes, but the law explicitly lists individual businesses as eligible too.
Q. Must there be a separate research institute?
A. To receive the research and human resource development expense tax credit, you must have a research facility. A research facility here means an independent research space used exclusively for R&D activities. As an independent research space, it must have its own door and walls to separate it from other departments. However, if the area is 50㎡ or less, the space can be separated from other departments with partitions and the like.
Only research activities may be carried out in the research facility. If other marketing or production activities are carried out in the research facility, the requirements are violated and the credit cannot be received.

Special taxation for R&D contributions

  • Expanded to R&D contributions received from the state, local governments, public institutions, and local public enterprises.

Tax schedule summary

Three main taxes for businesses

  1. Payroll reporting - every month
    • Withholding tax return and submission of the payment statement (if either one is not done, a penalty tax is added)
  2. VAT return - final return every 6 months, 1-6 and 7-12 (major expenses under tax law: tax invoices, credit cards, cash receipts)
  3. Income tax or corporate tax return - income tax return in May or corporate tax return in March

Among the terms...

  • Terms containing the character "예" (ye, "advance") are taxes paid in advance. (e.g. April - VAT preliminary notice, August - corporate tax interim prepayment, October - VAT preliminary notice, November - income tax interim prepayment)

Monthly schedule summary

  • January - Pay VAT for July-December of the previous year by 1/25.
    • Major purchases and sales are finalized. Try a provisional settlement for the May global income tax.
  • February - Business status report for tax-exempt individual businesses
    • Tax-exempt businesses such as hospitals and private academies do not need to file VAT in January, but instead must file a business status report by 2/10.
    • Submit the payment statement and periodic payment statement totaling the whole year by 2/28
  • March - Year-end tax settlement by 3/10 (when employees are hired, the company is obligated to do the settlement)
    • Year-end tax settlement takes time to organize data, so you should start by mid-February at the latest.
    • The "total remuneration report" for the four major social insurance agencies must also be submitted. (A kind of year-end settlement with the four major social insurance agencies)
    • 3/31 corporate tax return.
  • April - Preliminary VAT return and preliminary notice for general taxpayers (half of the VAT paid in January is billed)
  • May - All individual businesses must file "global income tax".
    • By 5/31, individual businesses with employees file the total remuneration report for the owner's health insurance premiums.
      • When an individual business hires employees, the business owner becomes an employee-insured subscriber like the employees. The employees filed their total remuneration report in March during the year-end tax settlement, but for the owner, the individual business income is finalized in May, so this is the total remuneration report for that.
  • June - Returns for individual businesses subject to sincere filing confirmation
    • Individual businesses file based on sales.
      • Wholesale and retail - KRW 1.5 billion or more
      • Manufacturing/restaurants/construction/transportation/information and communications - KRW 750 million or more
      • Real estate/leasing/services - KRW 500 million or more
    • Also "overseas financial account reporting" (the fines are large, so don't forget it)
      • When holding accounts overseas (e.g. for overseas business), report if the balance exceeded KRW 500 million on even a single day, based on the last day of each month of the year. (The fine is 20% of the unreported amount)
      • It is separate from the income tax return.
    • For those required to keep double-entry books, this is the deadline for reporting business accounts. - If not reported, the startup reduction does not apply.
  • July - General taxpayers pay VAT for January-June by 7/25.
  • August - Corporate tax interim prepayment (deducted from the corporate tax paid in March of the following year)
  • September - None.
  • October - Preliminary VAT return and preliminary notice for general taxpayers (half of the VAT paid in July is billed or paid) ~ deducted as is from the VAT paid in the following January.
  • November - Income tax interim prepayment (paying half of the tax paid in May. Deducted from the tax paid the following May.)
  • December - Automobile tax

Tax tips for South Korea (?)

  • High earners need to know their usual income through a provisional settlement(?) 1
  • If annual income is under KRW 24 million, you qualify for the simple expense rate. -> Apparently you can file global income tax very easily.. 2
    • In this case, most of the 3.3% tax already paid is refunded, or only a very small tax comes out. So in this case, if you are a freelancer, don't register a business.
  • If annual income exceeds KRW 75 million -> you are required to keep double-entry books (just file like an ordinary business)

Free inquiry methods

  • National Tax Service call center 126
  • Questions of up to 1000 bytes can be asked on Hometax

How to report financial income to the National Tax Service

See also

See also

References

author Zer0 sitemap