Korea

Country starter pack
Business practicalities in Korea
69
Individual tax rates:
• A foreigner who has salary income in Korea can opt to
be taxed at a flat rate of 18.7 per cent (including the
local income surtax) or the progressive tax rates with
various deductions. The flat rate election is granted
for the first five years of his or her employment in
Korea.
• Dividend and interest income exceeding KRW 20
million received by a resident individual are subject to
progressive tax rates. The withholding tax charged on
dividend and interest payments from Korean sources
amounting to less than KRW 20 million generally is
considered final.
• Korea does not levy a net wealth tax.
Deductions and reliefs
• Tax credits are available for aggregate global income
when the foreign portion of the taxpayer’s income has
already been taxed.
• Certain savings plans provide tax benefits under
government incentive programs to encourage savings.
• Various deductions and allowances are permitted,
including an earned income deduction and deductions
for qualifying medical expenses, certain educational
expenses, and charitable donations.
• Resident individual taxpayers are entitled to a number
of deductions for themselves and their dependants –
the basic deduction is KRW 1.5 million (per person)
for the taxpayer, their spouse and dependants.
5.4 AUDIT AND ACCOUNTANCY
Books and records
Korean commercial law requires that accounting records
explain a company’s transactions and any effects these
have on its operational assets. Accounting records
and important documents related to the company’s
operations are normally required to be retained for 10
years. An exception is for accounting slips, which are
required to be retained for five years.
Accounting period
The accounting period (not exceeding one year)
determines a company’s “financial year”. Each financial
year ends on the last day of the accounting period and
accounts can be made up to that date. The current
commercial law requires a book to be closed at least
once a year. On incorporation, a company may choose
an “accounting reference date” (i.e. the day and month
on which an accounting period ends). The accounting
period is determined to be a certain period up to the
accounting reference date, which is generally 12 months
in duration. Most businesses have the period 1 January
to 31 December as their accounting period. However, a
company may adopt a different year-end which does not
exceed one year.
Accounting standard
Business entities generally follow the accrual basis of
accounting. All income realised and expenses incurred or
attributable to the current period should be recognised
as income or expenses in the current period regardless of
when the income is received or expenses are paid.
Financial accounting standards in Korea consist of:
• Korean International Financial Reporting Standards
(K-IFRS), established by the Korea Accounting
Standards Board based on the International
Accounting Standards. All companies listed on
Korean capital markets are obligated to apply.
• Accounting Standards for Non-Public Entities
applied by those companies which are subject to the
Act on External Audit of Stock Companies but are
not mandated to adopt K-IFRS; and
• Accounting Standards for Special Topics established
by the Korea Accounting Standards Board in order to
reflect requirements of relevant laws and regulations,
or to reflect the differences in trading and business
environment that are unique to Korea. These
accounting standards are limited to particular entities
with special forms or accounting treatments, such
as “Corporate Restructuring Investment Company”,
“Collective Investment Agency”, and “Trust account
of Trust Agent”.
Accounts and reports
Directors must prepare basic financial statements and
business reports in each accounting period. In the case
of a stock company, the director must prepare financial
statements and business reports approved by the board
of directors, and shall comply with the following reporting
procedures:
• Director must submit financial statements and
business reports to a statutory auditor six weeks prior
to a regular general meeting.
• Within four weeks of the date of receipt of the above
documents, auditor must submit an audit report to
director.
• Director must submit the financial statements to the
general meeting for approval, and report the contents
of business reports.
• When certain requirements are met, a company
may receive approval from the board of directors on
financial statements as provided by the articles of
incorporation.