Korean corporate tax on a foreign-owned subsidiary runs at 10, 20, 22 and 25 percent of taxable income for fiscal years beginning on or after 1 January 2026, plus a local corporate income tax at one tenth of each rate, for combined marginal rates of 11 to 27.5 percent. The subsidiary prepays at the half year and files within three months of year end. For most foreign parents, the less predictable costs sit in withholding on money sent home and in transfer pricing.
This piece is written for the executive who signs off the Korea budget. It sits under the operational guide to how to start a business in Korea, which covers entity choice, registration and the compliance calendar, and goes one level deeper on the tax line: what the rates produce in won, when cash leaves the company, what repatriation costs, and where foreign-owned subsidiaries draw audit attention.
What Are the Korean Corporate Tax Rates in 2026?
Four national brackets apply to each fiscal year’s taxable income under Article 55 of the Corporate Tax Act (법인세법), in the version in force from 1 January 2026. Local corporate income tax (법인지방소득세) applies to the same base under Article 103-20 of the Local Tax Act at exactly one tenth of each national rate.
| Taxable income (KRW) | National rate | Local rate | Combined marginal rate |
|---|---|---|---|
| Up to 200 million | 10% | 1.0% | 11% |
| 200 million to 20 billion | 20% | 2.0% | 22% |
| 20 billion to 300 billion | 22% | 2.2% | 24.2% |
| Above 300 billion | 25% | 2.5% | 27.5% |
Sources: Corporate Tax Act Article 55 and Local Tax Act Article 103-20, both in force from 1 January 2026 (law.go.kr); PwC Worldwide Tax Summaries for Korea, reviewed June 2026.
The brackets are marginal, so the blended rate sits well below the top of the band a company lands in. On KRW 1 billion of taxable income, national tax is KRW 20 million on the first 200 million plus KRW 160 million on the remaining 800 million, KRW 180 million in total, and local tax adds KRW 18 million. That is KRW 198 million, an effective 19.8 percent. On KRW 25 billion, the statute’s cumulative KRW 3.98 billion at the 20 billion threshold plus 22 percent of the excess gives KRW 5.08 billion of national tax, 20.3 percent before local tax.
The Local Tax Act lets a local government adjust its rate by ordinance within half of the standard rate; the one-tenth ratio is the standard rate and the planning default.
What Changed in 2026 for Foreign-Owned Companies?
Three changes landed together. The first two reach every foreign-owned subsidiary; the third reaches only large groups.
Every bracket rose one point. The 2025 tax reform moved the schedule from 9, 19, 21 and 24 percent to 10, 20, 22 and 25 percent for fiscal years beginning on or after 1 January 2026, per PwC Worldwide Tax Summaries and RSM Korea. A budget built on 2024 or 2025 guidance understates the tax line by a full point in every band.
Treaty rates now travel with paperwork the payer forwards. A foreign parent claiming a reduced treaty rate gives the Korean payer a 제한세율 적용신청서 (application for the reduced treaty rate) with evidence that it is the beneficial owner. Under Corporate Tax Act Article 98-6, the payer applies the domestic rate when those documents are missing, and from 2026 it forwards them to its tax office by the end of February of the following year, per RSM Korea’s December 2025 briefing on the 2026 changes. A parent charged the domestic rate can claim the difference back through a 경정청구 (refund claim) within five years.
A domestic minimum tax now sits under Korea’s global minimum tax rules. Korea legislated the Pillar Two rules in the Law for the Coordination of International Tax Affairs: the income inclusion rule for fiscal years beginning on or after 1 January 2024, the undertaxed profits rule from 2025, and a domestic minimum top-up tax from 1 January 2026, per PwC. The rules reach groups with consolidated revenue of EUR 750 million or more (RSM Korea, 2025), and Korean constituent entities of those groups file a GloBE information return, or a notification where a foreign group entity files the return abroad (LCITA Article 83). A parent below that threshold can set this section aside.
When Is Korean Corporate Tax Filed and Paid?
Korean corporate tax is paid in two national installments a year, with a separate local return and monthly withholding remittances in between, and for a young subsidiary the cash calendar matters as much as the rate.
- Annual return and payment: within three months of the end of the month in which the fiscal year ends, under Corporate Tax Act Article 60. A company whose statutory audit has not finished can apply for a one-month extension and pays interest for the extra time. Tax above KRW 10 million can be paid in installments, with the balance due within one month, or two months for an SME (Article 64).
- Interim prepayment (중간예납): paid within two months after the first six months of the fiscal year close, under Article 63, and computed either as half of the prior year’s tax, net of credits and tax already withheld, or on actual half-year results (Article 63-2). The prior-year basis is the one that surprises a second-year subsidiary after a profitable first year. A newly incorporated company is exempt in its first fiscal year, as is an SME whose computed prepayment falls under KRW 500,000.
- Withholding: tax withheld on payments to a foreign company is remitted by the tenth of the following month, under Article 98.
- Local corporate income tax: a separate return and payment to the local government within four months of the end of the month in which the fiscal year ends, apportioned across districts where the company has more than one place of business (Local Tax Act Article 103-23).
For a calendar-year subsidiary, that puts the national annual payment at 31 March, the local payment at 30 April and the interim payment at 31 August. A Korean company chooses its fiscal year in its articles of incorporation, capped at twelve months (PwC, 2026). Matching the parent’s year end removes a reconciliation from every reporting cycle. It is cheapest to set at incorporation; changing it later requires notice to the tax office within three months after the end of the preceding fiscal year, and the gap becomes a short transition year (Corporate Tax Act Article 7).
How Do Losses and the Minimum Tax Change the Early Years?
Losses carry forward fifteen years, but a profitable year can absorb them only up to a cap. Under Corporate Tax Act Article 13, losses from fiscal years that began within the prior fifteen years can offset up to 80 percent of a year’s taxable income, rising to 100 percent for SMEs and for companies carrying out a rehabilitation plan. Carryback is generally unavailable, except a one-year election for SMEs (PwC, 2026).
The consequence for a foreign subsidiary: in the year it turns profitable, a non-SME pays tax on at least a fifth of its income even with a large loss pool behind it. Most subsidiaries of large foreign groups are non-SMEs: the SME independence test excludes a company whose largest shareholder, holding 30 percent or more, is a corporation with total assets of KRW 500 billion or more, foreign corporations included (Framework Act on Small and Medium Enterprises Enforcement Decree Article 3). Plan on the 80 percent cap, no carryback and the non-SME minimum tax unless the accountant confirms otherwise.
The minimum tax limits how far incentives can reduce the bill. A non-SME pays at least 10 percent of its tax base up to KRW 10 billion, 12 percent between KRW 10 billion and KRW 100 billion, and 17 percent above that, measured before certain deductions and credits; for SMEs the floor is 7 percent (Restriction of Special Taxation Act Article 132; PwC, 2026). Credits and deductions cannot take the bill below that floor in the year they are claimed. Read that alongside the repeal of the old five-year corporate tax holiday for foreign investment, covered in the guide to Korea FDI incentives.
What Does It Cost to Repatriate Profit From Korea?
Dividends, royalties and interest paid to a foreign parent with no Korean permanent establishment are taxed by withholding. Corporate Tax Act Article 98 sets the domestic rates at 20 percent on dividends, 20 percent on royalties, and 20 percent on most interest (14 percent on bond interest). Local income tax adds a tenth of the withholding rate on top (PwC, January 2026 withholding table), so the non-treaty all-in rate on a dividend is 22 percent.
Treaties cut that. Korea’s treaty with the United States sets 10 or 15 percent on dividends, 12 percent on interest and 10 or 15 percent on royalties, and its treaty with the United Kingdom sets 5 or 15 percent on dividends, per PwC’s January 2026 table; the lower dividend rate turns on the parent’s shareholding. The local surcharge still applies at one tenth of the treaty rate. On a KRW 1 billion dividend, that is the difference between KRW 220 million withheld at the domestic rate and KRW 110 million at a 10 percent treaty rate.
Three structuring points decide the final number.
The route. Dividends come out of after-tax profit. Royalties and service fees can be deductible for the subsidiary, which is why most groups use a mix. Dividends are declared by shareholder resolution, or by the board where it approves the financial statements, and the company sets aside at least one tenth of each cash dividend as a legal reserve until the reserve reaches half of its capital (Commercial Act Articles 458 and 462). Interest on loans from a foreign controlling shareholder is limited on two tests: interest on borrowing above twice that shareholder’s equity loses its deduction, as does net interest to foreign related parties above 30 percent of adjusted taxable income (Law for the Coordination of International Tax Affairs Articles 22 and 24). For an intra-group service fee to be deductible, Korean rules require an agreement in place before the service is provided, documentation proving the service happened, an expected benefit to the Korean company, and an arm’s-length price (PwC, 2026).
The paperwork. Treaty rates depend on the application and beneficial ownership evidence reaching the payer before it pays. Get residence certificates in place before the first payment.
The home-country side. Whether Korean withholding is creditable at home, and how the parent’s tax authority classifies the Korean entity, often moves the net cost more than the Korean rate does. The guide to yuhan hoesa vs jusik hoesa covers the US classification question.
Where Do Foreign-Owned Subsidiaries Draw Tax Audit Attention?
Related-party pricing draws it first. A Korean subsidiary buying goods, services, licences or funding from its parent sits squarely inside the transfer pricing rules of the Law for the Coordination of International Tax Affairs, which let the tax authorities adjust the price to arm’s length and recompute the Korean company’s income (PwC, 2026).
The full documentation report, a master file and a local file, is required where the Korean company’s annual sales exceed KRW 100 billion and its cross-border related-party transactions exceed KRW 50 billion a year, filed within 12 months of the end of the month in which the fiscal year ends (PwC, 2026). Below those thresholds, a subsidiary files no master or local file, though it still files a statement of international transactions within six months of the end of the month in which the fiscal year ends unless its transactions fall under the small-volume exemptions (LCITA Article 16), and it should still hold support for how each intercompany price was set.
Audits carry procedural rights and new sanctions. A periodic tax audit requires written notice 20 days in advance, and for audits commencing on or after 15 September 2025, a corporation that fails to provide requested books and documents faces a new enforcement fine (PwC, 2026). The practical protection is to keep intercompany agreements, invoices and service evidence organized and readable by a Korean auditor from the first transaction.
Two patterns draw attention in practice. A foreign-owned distributor or sales subsidiary that reports losses year after year invites the question of whether its transfer prices leave it a routine return, and larger cross-border cases sit with the international transaction investigation bureau (국제거래조사국) of the Seoul Regional Tax Office. The second is permanent establishment risk, when parent-company staff negotiate or sign contracts in Korea outside the subsidiary.
Which Korean Tax Decisions Belong With the Executive?
Four decisions set the tax outcome before the accountant touches a return.
- The fiscal year, set in the articles of incorporation. Align it with the parent at the outset; changing it later costs a transition year.
- The repatriation route, whether dividends, royalties, service fees or interest, chosen when the entity is set up, because each route needs its agreement and evidence in place before the first payment.
- The treaty file, with residence certificates and the treaty application ready before the first cross-border payment.
- The cash calendar, with the March national balance, the April local balance and the August prepayment in the year-one treasury plan.
The rest is execution, which a competent Korean accounting firm handles inside Hometax (홈택스), the National Tax Service’s electronic filing system. The guide to starting a business in Korea gives the same advice: engage that firm before the first transaction, since each of the four decisions above is cheaper to make at incorporation than to unwind later.
Frequently Asked Questions
What is the corporate tax rate in Korea in 2026? National corporate tax is 10 percent on taxable income up to KRW 200 million, 20 percent up to KRW 20 billion, 22 percent up to KRW 300 billion, and 25 percent above that, for fiscal years beginning on or after 1 January 2026 under Corporate Tax Act Article 55. Local corporate income tax adds one tenth of each rate, so combined marginal rates run from 11 to 27.5 percent.
Do foreign-owned companies pay a different corporate tax rate in Korea? No. A Korean subsidiary is a domestic corporation taxed on its worldwide income at the same rates as a Korean-owned company. The foreign dimension shows up in withholding of 20 percent plus local tax on dividends, royalties and most interest paid to a foreign parent without a Korean permanent establishment, reduced by treaty, and in transfer pricing rules on related-party transactions.
When is the corporate tax return due in Korea? Within three months of the end of the month in which the fiscal year ends, which is 31 March for a calendar-year company. The separate local corporate income tax return follows within four months, by 30 April. An interim prepayment covering the first six months falls due within two months after the half year, 31 August for a calendar-year company, and a newly incorporated company skips it in its first year.
Can a Korean subsidiary use its startup losses against later profits? Yes, for fifteen years on losses from fiscal years beginning on or after 1 January 2020, but a non-SME can offset only 80 percent of a year’s taxable income, so a profitable year still pays tax on the remaining fifth. SMEs can offset in full and may elect a one-year carryback. The minimum tax separately limits how far credits and deductions can reduce the bill.
Getting the Tax Line Right
Korean corporate tax is predictable once the rates, the calendar and the repatriation route are set deliberately at incorporation. The tax structure itself belongs with a Korean accounting firm. Joon K Lee advises international companies on the Korea entry decisions around it and runs market entry execution through Inquivix; write to joon@joonklee.com.
