You are here:
AsianLII >>
Databases >>
Laws of the Republic of Korea >>
CORPORATE TAX ACT
[Database Search]
[Name Search]
[Noteup]
[Help]
CORPORATE TAX ACT
CORPORATE TAX ACT
INTRODUCTION
Details of Enactment and Amendment
- Enactment: The Corporate Tax Act is a statute that provides the regulatory details of corporate taxes which are assessed on the
earnings and liquidation incomes of a corporation for each fiscal year. This Act was enacted on November 7, 1949 as Act No. 62.
- Amendment: This Act has been amended almost every year, almost as an annual event, including being wholly amended in the year 1961,
1967 and 1998.
Main Contents
- A person who is liable to pay a corporate tax shall be a domestic corporation, and a foreign corporation shall be liable to pay
it only where it has any withholding income in Korea. Taxable income subject to corporate tax shall be the income of a corporation
earned in each business year and the liquidation income (liquidation income = value of the remaining property that the investors
receives when the corporation ceases to exist by liquidation, merger or acquisition, or compensation for such merger or acquisition
- total equity capital) obtained at the time of its liquidation, but the liquidation income of any non-profit domestic corporation
and foreign corporation shall not be subject to taxation.
- The business year of a corporation shall be one accounting period prescribed by Acts and subordinate statutes or the corporation
articles of incorporation, which shall not exceed one year. A corporation which wishes to change its business year shall report
to the chief of the district tax office having jurisdiction over the place of tax payment within 3 months of the date of the end
of the immediately preceding business year.
- The place of tax payment for corporate tax of a foreign corporation shall be the location of the domestic place of business: Provided,
That for a foreign corporation with no domestic place of business which earns income from real estate rights, transfer income, or
forestry income, it shall be the location of each of the relevant assets. Where a foreign corporation has 2 or more domestic places
of business, the place of tax payment shall be the location of its main place of business.
- The tax base for corporate tax on the income for each business year of a foreign corporation with a domestic place of business,
a foreign corporation with income from domestic real estates or real estate rights, or a foreign corporation with forestry income
shall be the total amount of income generated from sources in Korea minus the amount of losses generated during the five business
years immediately preceding the current business year, non-taxable income, and income generated by the navigation of a ship or aircraft
to a foreign country, which are deducted in sequential order.
- The total amount of a foreign corporation s income generated from sources in Korea shall be calculated by applying mutatis mutandis
the method of calculating the income, earnings, and losses of a domestic corporation generated during each of its business years
and the method of non-taxation and income deduction for a domestic corporation.
- The income of a corporation for each business year shall be the total amount of losses incurred during the business year deducted
from the total amount of earnings during the business year. In this case, earnings shall mean the amount of proceeds generated by
transactions which increase the net assets of the concerned corporation, and losses shall mean the amount of losses generated by
transactions which cause a reduction in the net assets of the concerned corporation.
- This Act provides the objects of and standards for non-inclusion in the calculation of earnings and losses: to be concrete, proceeds
from capital transactions, marginal profits from the evaluation of assets, dividend amounts received by a holding company, dividend
amounts received from an equity investment in another corporation, etc. shall not be included in the calculation of earnings, and
marginal losses from the evaluation of assets, depreciation costs, donations, entertainment expenses, excessive expenses, non-business
expenses, interest on loans, etc. shall not be included in the calculation of losses, for both of which the detailed standards are
prescribed in this Act.
- Reserve funds for proper business purposes, liability reserve funds under Acts, a policyholder dividend reserve funds for an insurer
to pay dividend to insurance policyholders, the allowances for severance and retirement benefits, bad debt allowances to cover bad
debts, etc. shall be included in the calculation of losses, for which the detailed requirements are prescribed in this Act.
- A corporate tax of a foreign corporation on the income of each business year shall be an amount obtained by multiplying the amount
of a tax base by a tax rate. In this case, if the amount of the tax base is not more than one hundred million won, the tax rate shall
be applied at 15 percent (13 percent in and after 2005), and if the amount of the tax base is more than one hundred million won,
the tax rate shall be applied at 15 percent (13 percent in and after 2005) up to one hundred million won and at 27 percent (25 percent
in and after 2005) with respect to the amount in excess of the one hundred million won.
- Where a foreign corporation comes to have a domestic place of business, it shall make a report on its establishment to the chief
of the district tax office having jurisdiction over the place of tax payment, accompanied by a balance sheet and other relevant documents,
within two months from the date when such place of business is established.
CORPORATE TAX ACT
Wholly Amended by Act No. 5581, Dec. 28, 1998
Amended by Act No. 6047, Dec. 28, 1999
Act No. 6259, Feb. 3, 2000
Act No. 6293, Dec. 29, 2000
Act No. 6558, Dec. 31, 2001
Act No. 6852, Dec. 30, 2002
Act No. 7005, Dec. 30, 2003
Act No. 7117, Jan. 29, 2004
Act No. 7289, Dec. 31, 2004
Act No. 7317, Dec. 31, 2004
CHAPTER I GENERAL PROVISIONS
Article 1 (Definitions)
The terms used in this Act shall be defined as follows:
1.The term domestic corporation means a corporation with its headquarters or main office in the Republic of Korea;
2.The term non-profit domestic corporation means a domestic corporation which falls under any of the following items:
(a) A juristic person established under the provisions of Article 32 of the Civil Act;
(b) A juristic person established under the Private School Act or other special Acts for the purposes prescribed in Article 32 of
the Civil Act or similar purposes (excluding juristic persons as prescribed by the Presidential Decree which are not partnership
corporations and which can pay profit dividends to stockholders, employees, or investors); and
(c) Organizations treated as corporations under the provisions of Article 13 (4) of the Framework Act on National Taxes (hereinafter
referred to as organizations to be treated as corporations );
3.The term foreign corporation means a corporation with its headquarters or main office in a foreign country;
4.The term non-profit foreign corporations shall mean foreign governments or local governments, and other foreign corporations which
are not operated for the purpose of generating profit (including organizations treated as corporations); and
5.The term business year means one accounting period for the calculation of a corporation s income.
Article 2 (Tax Liability)
(1) Corporations falling under each of the following subparagraphs shall be liable to pay corporate tax on income under this Act:
1.Domestic corporations; and
2.Foreign corporations which generate income in the Republic of Korea.
(2)Where domestic corporations and foreign corporations earn land transfer marginal profits of land, etc. provided for in Articles
55-2 and 95-2, they shall be liable to pay the corporate tax under this Act. <Amended by Act No. 6558, Dec. 31, 2001>
(3)Corporate taxes shall not be imposed on such domestic corporations as the State and local governments (including local government
associations; hereinafter the same shall apply). <Amended by Act No. 6558, Dec. 31, 2001>
(4)Domestic corporations, foreign corporations, and residents and non-residents under the Income Tax Act shall be liable to pay corporate
taxes to be withheld under this Act.
Article 3 (Scope of Taxable Income)
(1) Corporate taxes shall be imposed on income under each of the following subparagraphs: Provided, That for non-profit domestic corporations
and foreign corporations, corporate taxes shall be imposed only on income under subparagraph 1:
1.Income of each business year; and
2.Liquidation income.
(2) Income for each business year of non-profit domestic corporations shall be income obtained through business or revenue under each
of the following subparagraphs (hereinafter referred to as the profit-making business ):
1.Earnings generated from businesses prescribed by the Presidential Decree such as manufacturing, construction, wholesale or retail
sales, consumer product repair, real estate, rental, and provision of business services;
2.Interest, discounts, and profits under the provisions of each subparagraph of Article 16 (1) of the Income Tax Act;
3.Dividends or funds distributed under the provisions of each subparagraph of Article 17 (1) of the Income Tax Act;
4.Revenue arising from the transfer of stocks, preemptive subscription rights, or contribution quotas;
5.Revenue arising from the disposal of fixed assets (excluding fixed assets used directly for proper purpose businesses as prescribed
by the Presidential Decree); and
6.Revenue arising from continuing action other than that under subparagraphs 1 through 5 as prescribed by the Presidential Decree.
(3) Income for each business year of foreign corporations shall be income earned in the Republic of Korea under the provisions of
Article 93 (hereinafter referred to as the income generated in Korea ): Provided, That for non-profit foreign corporations, this
shall be limited to income generated in Korea through profit-making businesses.
Article 4 (Real Taxation)
(1) Where the corporation to which all or part of revenue from assets or business legally accrues and the corporation to which it
actually accrues are different, this Act shall apply to the corporation to which the revenue actually accrues.
(2) The provisions concerning the calculation of the amount of taxable income subject to corporate tax shall apply to the real income
and earnings, notwithstanding their designation or form.
Article 5 (Trust Income)
(1) With regard to income accrued to a trust estate, the beneficiary to receive the profits of the trust (where no beneficiary is
specified or no beneficiary exists, the trustee of the trust or his successor) shall be deemed the owner of the trust estate in the
application of this Act.
(2) With regard to revenues and expenditures accrued to trust estate of corporations regulated by the Trust Business Act and the Act
on Business of Operating Indirect Investment and Assets (excluding special accounts of insurance company pursuant to Article 135
of the same Act; hereinafter the same shall apply), the revenues and expenditures shall be deemed not to be accrued to the corporation.
<Amended by Act No. 7005, Dec. 30, 2003>
Article 6 (Business Year)
(1)The business year shall be one accounting period prescribed by Acts and subordinate statutes or the corporation s articles of incorporation:
Provided, That this period shall not exceed one year.
(2) A domestic corporation with no provisions concerning the business year in the Acts and subordinate statutes or its articles of
incorporation shall separately determine its business year and report it together with the report on incorporation under the provisions
of Article 109 (1) or the registration of business under the provisions of Article 111 to the chief of the district tax office having
jurisdiction over the place of tax payment (the chief of the tax office under the provisions of Article 12; hereinafter the same
shall apply).
(3)A foreign corporation with a place of business in the Republic of Korea under the provisions of Article 94 (hereinafter referred
to as a domestic place of business ) which has no provisions concerning the business year in the Acts and subordinate statutes or
its articles of incorporation shall separately determine its business year and report it together with the report on the establishment
of a domestic place of business under the provisions of Article 109 (2) or the registration of business under the provisions of Article
111 to the chief of the district tax office having jurisdiction over the place of tax payment.
(4)A foreign corporation with no domestic place of business which earns income under the provisions of subparagraph 3, 7 or 8 of Article
93 shall separately determine its business year and report it to the chief of the district tax office having jurisdiction over the
place of tax payment within one month of the date on which such income was first generated.
(5) Where a corporation which shall report under the provisions of paragraphs (2) through (4) fails to report, the corporation s business
year shall be from January 1st to December 31st each year.
(6) Matters necessary for the determination of the beginning date of a corporation s first business year in the application of the
provisions of paragraphs (1) through (5) shall be prescribed by the Presidential Decree.
Article 7 (Change of Business Year)
(1) A corporation which wishes to change its business year shall report to the chief of the district tax office having jurisdiction
over the place of tax payment within 3 months of the date of the last day of the immediately preceding business year under the conditions
as prescribed by the Presidential Decree.
(2) Where a corporation does not report within the time limit under the provisions of paragraph (1), the corporation s business year
shall be deemed not to have changed: Provided, That, for a corporation whose business year is determined by Acts and subordinate
statutes, its business year shall be deemed to have changed as amended in such Acts and subordinate statutes where an amendment to
such Acts and subordinate statutes has effected a change in the provisons pertaining to its business year even if no reporting is
made pursuant to the provisions of paragraph. (1). <Amended by Act No. 6293, Dec. 29, 2000>
(3) Where the business year is changed pursuant to the provisions of paragraphs (1) and (2) (proviso), the period from the first day
of the previous business year to the first day of the new business year shall be deemed to constitute one business year: Provided,
That, where that period is shorter than one month, it shall be included in the new business year. <Amended by Act No. 6293, Dec.
29, 2000>
Article 8 (Legal Fiction of Business Year)
(1) Where a domestic corporation is dissolved during a business year (excluding dissolution due to merger, division, or division and
merger), the period from the first day of the business year until the date of registration of dissolution (referring to the date
of bankruptcy registration for any corporation which is dissolved on the grounds of bankruptcy and the date of dissolution for any
organization treated as corporation; hereinafter the same shall apply), and the period from the day after the date of registration
of dissolution until the last day of the concerned business year shall each be deemed to be 1 business year; and where the value
of residual assets of a domestic corporation being liquidated is settled during the business year, the period from the first day
of the business year until the date on which the value of residual assets is settled shall be deemed to be 1 business year. <Amended
by Act No. 6558, Dec. 31, 2001>
(2) Where a domestic corporation is dissolved during the business year due to a merger or division (including division and merger;
hereinafter the same shall apply), the period from the first day of the business year until the date of registration of the merger
or division shall be deemed to be 1 business year of the dissolved corporation.
(3) Where a domestic corporation in the process of liquidation under the provisions of Article 229, 285, 519, or 610 of the Commercial
Act continues to conduct business, the period from the first day of the business year until the date of registration of continuation
(where registration of continuation is not made, referring to the date of actual continuation of business; hereinafter the same shall
apply) and the period from the day after the date of registration of continuation until the last day of the business year shall each
be deemed to be 1 business year.
(4) Where a foreign corporation with a domestic place of business comes to no longer have the concerned domestic place of business
during the business year, the period from the first day of the business year until the date on which it no longer has the concerned
place of business shall be deemed to be 1 business year of the corporation: Provided, That this shall not apply where it continues
to have another place of business in Korea.
(5) Where a foreign corporation with no domestic place of business reports to the chief of the district tax office having jurisdiction
over the place of tax payment that it is no longer generating income under the provisions of subparagraph 3, 7, or 8 of Article 93,
the period from the first day of the business year until the date such report is made shall be deemed to be one business year.
Article 9 (Place of Tax Payment)
(1) The place of tax payment for corporate tax of a domestic corporation shall be the location of the registered headquarters or main
office of the concerned corporation: Provided, That for organizations treated as corporations, it shall be the place as prescribed
by the Presidential Decree.
(2) The place of tax payment for corporate tax of a foreign corporation shall be the location of the domestic place of business: Provided,
That for a foreign corporation with no domestic place of business which earns income under the provisions of subparagraph 3, 7, or
8 of Article 93, it shall be the location of each of its assets.
(3) Where a foreign corporation under paragraph (2) has 2 or more domestic places of business, the location of the place of business
prescribed by the Presidential Decree shall be the place of tax payment, and where the corporation has 2 or more assets, the place
prescribed by the Presidential Decree shall be the place of tax payment.
(4) The place of tax payment for corporate tax withheld under the provisions of Articles 73, 98 and 98-3 shall be the location of
the concerned person responsible for collecting withholding tax as prescribed by the Presidential Decree: Provided, That where the
person responsible for collecting withholding tax under the provisions of Articles 98 and 98-3 does not have a domestic location,
it shall be the place prescribed by the Presidential Decree. <Amended by Act No. 6558, Dec. 31, 2001>
Article 10 (Designation of Place of Tax Payment)
(1) Where the Commissioner of the competent Regional Tax Office (referring to the Commissioner of the competent Regional Tax Office
under the provisions of Article 12; hereinafter the same shall apply) or the Commissioner of the National Tax Service deems that
the place of tax payment under the provisions of Article 9 is inappropriate for the corporation and the Presidential Decree determines,
he may, notwithstanding the provisions of Article 9, designate a place of tax payment.
(2) Where the Commissioner of the competent Regional Tax Office or the Commissioner of the National Tax Service designates a place
of tax payment under the provisions of paragraph (1), he shall notify the concerned corporation under the conditions as prescribed
by the Presidential Decree.
Article 11 (Change of Place of Tax Payment)
(1)Where a corporation s place of tax payment is changed, the corporation shall report it to the chief of the district tax office
having jurisdiction over the new place of tax payment within 15 days of the date of the change under the conditions as prescribed
by the Presidential Decree. In this case, where the corporation whose place of tax payment has been changed reports the change under
the provisions of Article 5 of the Value-Added Tax Act, it shall be deemed to have reported the change of the place of tax payment.
(2) Where there is no report under the provisions of paragraph (1), the previous place of tax payment shall be the corporation s place
of tax payment.
(3) Where a foreign corporation comes to have no domestic place of tax payment falling under the provisions of Article 9 (2), it shall
report it to the chief of the district tax office having jurisdiction over the place of tax payment.
Article 12 (Jurisdiction of Taxation)
Corporate tax shall be levied by the chief of the district tax office or the Commissioner of the competent Regional Tax Office having
jurisdiction over the place of tax payment under the provisions of Articles 9 through 11.
CHAPTER II CORPORATE TAX ON INCOME OFDOMESTIC CORPORATIONS FOR EACH BUSINESS YEAR
SECTION 1 Tax Base and its Calculation
Sub-Section 1 Common Provisions
Article 13 (Tax Base)
The tax base for corporate tax on income of domestic corporations for each business year shall be, within the scope of the income
for each business year, the amount or income of the following subparagraphs deducted sequentially from the income amount:
1.The amount of deficits incurred during each business year within the five years prior to the first day of the current business year
which were not thereafter deducted in the calculation of the tax base;
2.Non-taxable income under this Act and other Acts; and
3.Amount of income deduction under this Act and other Acts.
Article 14 (Income for Each Business Year)
(1) The income of a domestic corporation for each business year shall be the total amount of deductible expenses incurred during the
business year deducted from the total amount of gross income during the business year.
(2) The amount of deficits of a domestic corporation for each business year shall be the total amount of gross income during the business
year deducted from the total amount of deductible expenses incurred during the business year.
Sub-Section 2 Calculation of Gross Income
Article 15 (Scope of Gross Income)
(1)Gross income shall mean the amount of proceeds generated by transactions which increase the net assets of the concerned corporation,
not including capital input or financing and other transactions as provided in this Act.
(2)The amount under each of the following subparagraphs shall be deemed to be gross income:
1.Where securities are purchased from an individual who is a person with a special relationship under the provisions of Article 52
(1) at a price which is below the market price under the provisions of Article 52 (2), the amount of the difference between the appropriate
market price and the concerned purchase price; and
2.The appropriate amount of tax liability of foreign corporations under the provisions of Article 57 (4) (limited to cases in which
the tax liability amount has been deducted).
(3)Matters necessary for the scope and classification of proceeds under the provisions of paragraph (1) shall be prescribed by the
Presidential Decree.
Article 16 (Legal Fiction of Dividends or Distributions)
(1)The amount under any of the following subparagraphs shall be deemed to be the amounts of profits received from the corporation
as dividends or surplus funds received from the corporation by distribution, and this Act shall apply accordingly: <Amended by
Act No. 6558, Dec. 31, 2001; Act No. 7317, Dec. 31, 2004>
1.The amount of the sum of funds and the value of other assets acquired by a stockholder, employee, or investor (hereinafter referred
to as a stockholder, etc. ) through the retirement of stocks, reduction of capital, employee retirement or separation, or investment
reduction in excess of the amount necessary for the stockholder, etc. to acquire the concerned stocks or contribution quotas (hereinafter
referred to as stocks, etc. );
2.The value of stocks, etc. acquired through the transfer of all or part of corporation s surplus funds into capital or financing:
Provided, That this shall not apply where amounts under any of the following items are transferred to capital:
(a) Capital reserve fund under the provisions of Article 459 (1) 1 through 3 and 3-2 of the Commercial Act (excluding marginal profits
from the evaluation of a merger and marginal profits from the evaluation of a division as prescribed by the Presidential Decree;
in case of the profit from retirement of equity stocks or contribution quotas, limited to the transfer of capital after the passage
of 2 years on the date of such retirement in case that the market price under Article 52 (2) does not exceed the acquisition value
at the time equity stocks or contribution quotas are retired; and limited to the amount gained by subtracting face value from market
value in case the market price of the stocks, etc. is above face value but below issue price when stocks are issued to convert liability
into investment); and
(b) Revaluation reserve fund under the Assets Revaluation Act (excluding an appropriate amount for any difference in the revaluation
of land under the provisions of Article 13 (1) 1 of the same Act);
3.In case that the equity ratio of stockholders, etc. of a corporation other than the relevant corporation is increased by the latter
s transfer of capital under the provisions of each item of subparagraph 2 while holding its own stocks and equity shares, the value
of stocks, etc. corresponding to such increased equity ratio;
4.The amount of funds and the value of other assets acquired by stockholders, etc. of a dissolved corporation (including members of
an organization treated as a corporation) through the distribution of the residual assets of the corporation in excess of the amount
necessary for the acquisition of the concerned stocks, etc.;
5.The amount of the sum of the value of stocks, etc., funds, and other assets which stockholders, etc. of a corporation which is extinguished
through a merger (hereinafter referred to as an extinguished corporation ) receive from a corporation which is established or maintained
through the merger (hereinafter referred to as a merged corporation ) in return for the merger (hereinafter referred to as the
cost of merger ) in excess of the amount necessary for the acquisition of the stocks, etc. of the extinguished corporation; and
6.Where a corporation is divided, the amount of the sum of the value of stocks, funds, and other assets which stockholders of the
divided corporation (hereinafter referred to as a divided corporation ) or counterpart corporation to a corporation extinguished
through division and merger receive from the corporation established through the division (hereinafter referred to as a corporation
established by division ) or the counterpart corporation to the division and merger in return for the division (hereinafter referred
to as the cost of division ) in excess of the amount necessary for the acquisition of the stocks of the divided corporation or counterpart
corporation to the corporation extinguished through division and merger (where the divided corporation continues to exist, limited
to stocks reduced by retirement).
(2)In the application of the provisions of paragraph (1), matters necessary for the period of the distribution of profit dividends
or surplus funds and the evaluation of the value of stocks, etc. shall be prescribed by the Presidential Decree.
Article 17 (Non-Inclusion of Proceeds from Capital Transactions in Calculation of Gross Income)
The proceeds of the following subparagraphs shall not be included in gross income in calculating the income amount for each business
year of a domestic corporation:
1.Surplus amount of par value of stocks issued;
2.Gains from retirement of stocks;
3.Marginal profits from a merger: Provided, That this shall not include marginal profits from the evaluation of mergers (hereinafter
referred to as merger evaluation marginal profits ) as prescribed by the Presidential Decree; and
4.Marginal profits from a division: Provided, That this shall not include marginal profits from the evaluation of divisions (hereinafter
referred to as division evaluation marginal profits ) as prescribed by the Presidential Decree.
Article 18 (Non-Inclusion of Evaluation Marginal Profits in Calculation of Gross Income)
The proceeds of the following subparagraphs shall not be included in gross income in calculating the income amount for each business
year of a domestic corporation: <Amended by Act No. 6558, Dec. 31, 2001>
1.Marginal profits from the evaluation of assets: Provided, That this shall not include evaluation marginal profits arising from evaluation
under the provisions of each subparagraph of Article 42 (1);
2.Gross income carried forward;
3.The amount appropriated for taxes other than corporate tax not included in the calculation of deductible expenses under the provisions
of subparagraph 1 of Article 21 or income-proportional resident tax refunded or to be refunded;
4.Interest on refunded national or local taxes paid in error;
5.Output tax amount of value-added tax;
6.The amount of 90% of the dividend income amount an institutional investor as prescribed by the Presidential Decree receives from
stock-listed corporations (hereinafter referred to as stock-listed corporations ) and Association-registered corporations (hereinafter
referred to as Association-registered corporations ) under the Securities and Exchange Act other than those prescribed by the Presidential
Decree;
7.Deleted; and <by Act No. 6558, Dec. 31, 2001>
8.The amount appropriated for making up for losses carried forward as prescribed by the Presidential Decree from among the value of
assets received without compensation, and the amount of the reduction of debt due to the exemption from or extinction of financial
obligations.
Article 18-2 (Non-Inclusion of Holding Company s Received Dividend Amount in Calculation of Gross Income)
(1)Where the sum computed pursuant to subparagraphs 1 and 2 exceeds the sum computed pursuant to subparagraphs 3 and 4, of profit
dividends or surplus distribution, or of legally fictitious dividends or distributions under Article 16 (hereafter referred to as
the received dividend amount in this Article and Article 18-3) received by a holding company prescribed by the Presidential Decree
among such domestic corporations that are classified as holding companies under the Monopoly Regulation and Fair Trade Act (including
financial holding companies under the Financial Holding Companies Act; hereafter referred to as a holding company in this Article)
from its subsidiary (referring to such domestic corporations that have been invested by the corresponding holding company and that
also meet the criteria prescribed by the Presidential Decree in consideration of the holding company s equity investment ratio in
the subsidiary; hereafter the same shall apply in this Article), such excess amount shall not be included in gross income in calculating
the income amount for each business year: <Amended by Act No. 6293, Dec. 29, 2000; Act No. 6558, Dec. 31, 2001; Act No. 7005,
Dec. 30, 2003; Act No. 7317, Dec. 31, 2004>
1.The amount computed by multiplying the dividend amount received from the subsidiary by 90/100 where a holding company has invested
in excess of 80/100 (40/100 in case of stock-listed or Association-registered corporations) of the corresponding subsidiary s total
issued equity stocks or equity investment shares: Provided, That the amount equivalent to the total dividend amount received from
the corresponding subsidiary where a holding company has invested in all of the subsidiary s issued stocks or equity investment shares;
2.The amount computed by multiplying the dividend amount received from the subsidiary by 60/100 where a holding company has invested
in the corresponding subsidiary at a ratio lower than that provided in subparagraph 1;
3.The amount calculated according to the Presidential Decree considering the ratio of non-inclusion of interest on borrowed money
into gross income pursuant to the provisions of subparagraphs 1 and 2, and the ratio of the amount invested in the subsidiary to
the total asset of the holding company, etc., in case where interest on borrowed money has been paid by the holding company in each
business year; and
4.The amount computed by multiplying the dividend amount received from the subsidiary by the ratio prescribed by the Presidential
Decree considering the corresponding subsidiary s equity investment in other corporations in case it made equity investment in any
company affiliated therewith under the Monopoly Regulation and Fair Trade Act (hereafter referred to as an affiliated company in
this subparagraph), or in other domestic corporations than affiliated company in excess of 1/100 of its total issued equity stocks
or investment amount: Provided, That the cases falling under any of the following items shall be excluded:
(a) In case where a subsidiary pursuant to the provisions of subparagraph 1-3 of Article 2 of Monopoly Regulation and Fair Trade Act
has invested in a business-related granddaughter company decided by the Fair Trade Commission;
(b) In case where a subsidiary pursuant to the provisions of Article 2 (1) 2 of the Financial Holding Companies Act invests in a granddaughter
company pursuant to the provisions of subparagraph 3 of the same paragraph; and
(c) In case where a subsidiary pursuant to the provisions of Article 2 (1) 2 of the Financial Holding Companies Act conforms to the
institutional investor pursuant to the provisions of subparagraph 6 of Article 18.
(2)The provisions of paragraph (1) shall not apply to received dividend amounts accrued from a holding company s holding of equity
stocks, etc. of its subsidiary within three months prior to the subsidiary s base date for dividend distribution. <Amended by
Act No. 6293, Dec. 29, 2000>
(3)In applying the provisions of paragraphs (1) and (2), necessary matters for the method for computing the ratio of equity investment
by a holding company in its subsidiary, amounts excluded from gross income, submission of a detail written statement of received
dividend amounts, etc. shall be prescribed by the Presidential Decree. <Amended by Act No. 6293, Dec. 29, 2000>
[This Article Newly Inserted by Act No. 6047, Dec. 28, 1999]
Article 18-3 (Non-Inclusion of Received Dividend Amount in Calculation of Gross Income)
(1)Where the sum computed pursuant to the provisions of subparagraphs 1 and 2 exceeds the sum computed pursuant to the provisions
of subparagraph 3, of dividend amounts received by a domestic corporation from another domestic corporation in which the former has
made an equity investment, such an excess amount shall not be included in gross income in calculating the income amount for each
business year: <Amended by Act No. 7317, Dec. 31, 2004>
1.The amount computed by multiplying dividend amount received from an invested domestic corporation by 50/100 where a domestic corporation
has invested in excess of 50/100 (30/100 in case of stock-listed or Association-registered corporations) of the total issued equity
stocks or investment shares of such an invested domestic corporation: Provided, That the total number of issued stocks or total amount
of investment has been invested, it refers to the amount corresponding to the total received dividend from other domestic corporations;
2.The amount arrived by multiplying the dividend amount received from an invested domestic corporation by 30/100 where the corresponding
investing domestic corporation has invested at a ratio lower than that provided in subparagraph 1; and
3.The amount calculated according to the Presidential Decree considering the ratio of non-inclusion of interest on borrowed money
into gross income pursuant to the provisions of subparagraphs 1 and 2, and the ratio of the amount invested in other domestic corporations
to the total asset of the domestic corporation concerned, etc., in case where interest on borrowed money has been paid by the holding
company in each business year.
(2)The provisions of paragraph (1) shall not apply to the following received dividend amounts:
1.Deleted; <by Act No. 6558, Dec. 31, 2001>
2.Received dividend amounts accrued from holding stocks, etc. acquired within three months prior to its base date for dividend distribution;
3.Received dividend amounts that are subject to the provisions of subparagraph 6 of Article 18 and Article 18-2; and
4.Dividend amounts received from a corporation falling under each subparagraph of Article 51-2 (1).
(3) In applying the provisions of paragraphs (1) and (2), necessary matters for the method for computing the ratio of equity investment,
the amount excluded from gross income, the submission of a detail written statement of received dividend amounts, etc. shall be prescribed
by the Presidential Decree.
[This Article Newly Inserted by Act No. 6293, Dec. 29, 2000]
Sub-Section 3 Calculation of Deductible Expenses
Article 19 (Scope of Deductible Expenses)
(1) Deductible expenses shall mean the amount of losses generated by transactions which cause a reduction in the net assets of the
concerned corporation, excluding return of capital or financing, disposition of surplus funds, and other transactions as provided
for in this Act.
(2) The losses under the provisions of paragraph (1) shall be losses or expenses generated or spent in connection with the business
of the corporation which are generally accepted as normal or directly related to profit, except as otherwise prescribed by this Act
and other Acts and subordinate statutes.
(3) Matters necessary for the scope and types of losses under the provisions of paragraphs (1) and (2) shall be prescribed by the
Presidential Decree.
Article 20 (Non-Inclusion of Losses from Capital Transactions, etc. in Calculation of Deductible Expenses)
Losses under each of the following subparagraphs shall not be included in deductible expenses in calculating the income amount for
each business year of a domestic corporation:
1.The amount appropriated as deductible expenses in the disposition of surplus funds: Provided, That this shall not apply to piece
rates as prescribed by the Presidential Decree;
2.Dividends on interest during construction; and
3.Margins from the discount issue of stocks.
Article 21 (Non-Inclusion of Various Taxes and Public Imposts in Calculation of Deductible Expenses)
Taxes and public imposts under each of the following subparagraphs shall not be included in the calculation of deductible expenses
for each business year of a domestic corporation: <Amended by Act No. 6293, Dec. 29, 2000; Act No. 6558, Dec. 31, 2001>
1.Corporate taxes or income-proportional resident taxes paid or to be paid for each business year (including the amount of foreign
corporate tax under Article 57), the tax amount paid or to be paid (including additional taxes) due to non-performance of duties
as provided in tax-related Acts, and the sales tax amount of value-added tax (excluding cases exempted from value-added tax or as
prescribed by the Presidential Decree);
2.The unpaid amount of special consumption tax, liquor tax, or transport tax on unsold manufactured goods: Provided, That this shall
not apply where the price of the manufactured goods includes a reasonable tax amount;
3.Deleted; <by Act No. 6558, Dec. 31, 2001>
4.Fines and penalties (including appropriate amounts for fines or penalties under noticed dispositions), fines for negligence (including
penalties and fines), additional charges for default, and fees for delinquency in payment;
5.Public imposts that are not mandatory under Acts and subordinate statutes; and
6.Public imposts that are imposed for non-performance of duties, or violation of prohibited or restricted acts under Acts and subordinate
statutes.
Article 22 (Non-Inclusion of Marginal Losses from Evaluation of Assets in Calculation of Deductible Expenses)
In the calculation of the income amount for each business year of a domestic corporation, the marginal losses from the evaluation
of assets in its possession shall not be included in deductible expenses: Provided, That this shall not apply to evaluation marginal
losses generated by the evaluation of assets under the provisions of Article 42 (2) and (3).
Article 23 (Non-Inclusion of Depreciation Costs in Calculation of Deductible Expenses)
(1) In the calculation of the income amount for the concerned business year of a domestic corporation, depreciation costs of fixed
assets shall be included in deductible expenses only when they are appropriated as deductible expenses (referring to the amount appropriated
as losses in the confirmation of the settlement of accounts; hereinafter the same shall apply) within the scope of the amount calculated
under the conditions as prescribed by the Presidential Decree (hereafter referred to as the scope of depreciation amount in this
Article), and the portion of the appropriated amount in excess of the scope of depreciation amount shall not be included in the calculation
of deductible expenses.
(2) Fixed assets under the provisions of paragraph (1) shall mean buildings other than land, machinery and equipment, patent rights,
and other assets as prescribed by the Presidential Decree.
(3) Domestic corporations which appropriate depreciation costs under the provisions of paragraph (1) as deductible expenses shall
submit a detailed statement on depreciation costs to the chief of the district tax office having jurisdiction over the place of tax
payment under the conditions as prescribed by the Presidential Decree.
(4) In the application of the provisions of paragraph (1), matters necessary for the method of appropriation of depreciation costs
as deductible expenses and the settlement of the amount in excess of the scope of the depreciation amount shall be prescribed by
the Presidential Decree.
Article 24 (Non-Inclusion of Donations in Calculation of Deductible Expenses)
(1) Of donations made during each business year by a domestic corporation in consideration of social welfare, culture, arts, education,
religion, charity, or learning as prescribed by the Presidential Decree (hereinafter referred to as designated donations ), the
amount in excess of 5% of the amount obtained by subtracting the amount under subparagraph 2 from the amount under subparagraph 1
(hereafter referred to as the limit amount of inclusion in deductible expenses in this Article) and donations other than designated
donations shall not be included in deductible expenses in the calculation of the income amount for the concerned business year:
1.The income amount for the concerned business year (the amount prior to the inclusion of donations and designated donations under
the provisions of paragraph (2) in the calculation of deductible expenses; hereafter in this Article the same shall apply); and
2.Donations included in the calculation of deductible expenses under the provisions of paragraph (2) and the total amount of deficits
under the provisions of subparagraph 1 of Article 13.
(2)The provisions of paragraph (1) and Article 29 shall not apply to donations under each of the following subparagraphs: Provided,
That where the total amount of the donations under each of the following subparagraphs is in excess of the amount obtained by subtracting
the deficits under subparagraph 1 of Article 13 from the income amount of the concerned business year, the amount in excess shall
not be included in deductible expenses in the calculation of the income amount for the concerned business year:
1.The value of money and other valuables contributed to the State or a local government without compensation: Provided, That for contributed
items under application of the Act on the Regulation of Donations Collection, this shall be limited to items requisitioned under
the provisions of Article 5 (2) of the same Act;
2.The value of contributions for national defense and money and other valuables contributed for the consolation and comfort of soldiers
of the national armed forces; and
3.The value of money and other valuables contributed for victims of natural disasters.
(3) The amount of designated donations in excess of the limit for inclusion in deductible expenses which is not included in the calculation
of deductible expenses under the provisions of paragraph (1) shall be carried forward and included in the calculation of deductible
expenses for each business year which is completed within three years of the first day of the business year following the concerned
business year as prescribed by the Presidential Decree.
Article 25 (Non-Inclusion of Entertainment Expenses in Calculation of Deductible Expenses)
(1) Of the amount a domestic corporation spends as entertainment expenses (excluding the amounts falling under paragraph (2)) during
each business year, the amount in excess of the sum of the amounts under each of the following subparagraphs shall not be included
in deductible expenses in the calculation of the income amount for the concerned business year:
1.The amount obtained by multiplying 12,000,000 won (18,000,000 won for small and medium enterprises as prescribed by the Presidential
Decree) by the number of months for the concerned business year, and then dividing it by 12; and
2.The amount obtained by multiplying the revenue amount for the concerned business year (limited to the revenue amount as prescribed
by the Presidential Decree) by the rates under the following table: Provided, That for revenue amounts generated by transactions
with a person with a special relationship under the provisions of Article 52 (1), the appropriate amount shall be 20% of the amount
obtained by multiplying the revenue amount by the rates provided in the following table:
Revenue Amount
Rate
10,000,000,000 won or less
20/10,000
More than 10,000,000,000 won
and up to 50,000,000,000 won
20,000,000 wonï¼?
(10/10,000 of the amount in excess of 10,000,000,000 won)
More than 50,000,000,000 won
60,000,000 wonï¼?
(3/10,000 of the amount in excess of 50,000,000,000 won)
(2) Of entertainment expenses paid by a domestic corporation, entertainment expenses that are paid in excess of the amount prescribed
by the Presidential Decree on one occasion and that do not fall under any of the following subparagraphs shall not be included in
deductible expenses in the calculation of the income amount for each business year: <Amended by Act No. 6293, Dec. 29, 2000>
1.Entertainment expenses paid by credit cards under the Specialized Credit Financial Business Act (including items similar to credit
cards, as prescribed by the Presidential Decree; hereafter referred to as credit cards, etc. in this Article); and
2.Entertainment expenses paid by receiving delivery of an invoice under the provisions of Article 121 of this Act and Article 163
of the Income Tax Act or a tax invoice under the provisions of Article 16 of the Value-Added Tax Act.
(3) If sales slips, that are issued in the name of a member shop of credit cards, etc. other than the one that does actually supply
the corresponding goods or services, are delivered, the corresponding payment amounts shall not be included in the entertainment
expenses provided in paragraph (2) 1 in applying the same subparagraph of the same paragraph. <Newly Inserted by Act No. 6293,
Dec. 29, 2000>
(4) Deleted. <by Act No. 6558, Dec. 31, 2001>
(5) Entertainment expenses in paragraphs (1) through (3) shall mean entertainment expenses and expenses of a similar nature spent
by a corporation in connection with its business, regardless whether such expenses are called social expenses, honoraria, or other
pretexts. <Amended by Act No. 6293, Dec. 29, 2000; Act No. 6558, Dec. 31, 2001>
Article 26 (Non-Inclusion of Excessive Expenses in Calculation of Deductible Expenses)
Of the losses under each of the following subparagraphs, the amount recognized as excessive or inappropriate as prescribed by the
Presidential Decree shall not be included in deductible expenses in the calculation of the income amount of a domestic corporation
for each business year: <Amended by Act No. 6558, Dec. 31, 2001>
1.Personnel/labor expenses;
2.Welfare expenses;
3.Travel expenses and education and training expenses;
4.Business expenses of a corporation operating an insurance business (including mutual aid projects under the Agricultural Cooperatives
Act and the Fisheries Cooperatives Act; hereinafter the same shall apply);
5.Losses generated or paid by a corporation as a result of the joint operation or management of an identical organization or business
with a person other than the concerned corporation; and
6.Expenses other than those under subparagraphs 1 through 5 recognized as having little direct connection to the business of the corporation
as prescribed by the Presidential Decree.
Article 27 (Non-Inclusion of Non-Business Expenses in Calculation of Deductible Expenses)
Of the expenditures of a domestic corporation during each business year, the amounts under each of the following subparagraphs shall
not be included in deductible expenses in the calculation of the income amount of the concerned business year:
1.The amount of expenses as prescribed by the Presidential Decree incurred by the acquisition and management of the assets which are
prescribed by the Presidential Decree and which are deemed to have no direct connection to the business of the concerned corporation;
and
2.Expenditures as prescribed by the Presidential Decree other than the amount of subparagraph 1, which are deemed to have no direct
connection to the business of the corporation.
Article 28 (Non-Inclusion of Paid Interest in Calculation of Deductible Expenses)
(1)Interest on loans under each of the following subparagraphs shall not be included in deductible expenses in the calculation of
the income amount for each business year of a domestic corporation:
1.Interest on debentures for which the creditor is unknown;
2.Of the interest, discount amount, or marginal profits on bonds and securities under the provisions of Article 16 (1) 1, 2, 6, and
9 of the Income Tax Act, the interest, discount amount, or marginal profits on bonds and securities as prescribed by the Presidential
Decree for which the person who received payment is unknown;
3.Interest on loans appropriated for construction capital as prescribed by the Presidential Decree; and
4.Of interest on loans paid during each business year by a domestic corporation which acquires or possesses assets falling under one
of the following items, the amount calculated under the conditions as prescribed by the Presidential Decree (limited to interest
on loans of an appropriate amount for the value of the concerned assets):
(a) Assets falling under the provisions of subparagraph 1 of Article 27; and
(b) Provisional payments, etc. to a person with a special relationship under the provisions of Article 52 (1) with no connection to
the business of the concerned corporation, and which are prescribed by the Presidential Decree.
(2)through (4)Deleted. <by Act No. 7317, Dec. 31, 2004>
(5)Where the provisions of paragraph (1) and the provisions of the Restriction of Special Taxation Act on the non-inclusion of interest
on payment in the calculation of deductible expenses apply simultaneously, they shall apply in the order as prescribed by the Presidential
Decree. <Amended by Act No. 7317, Dec. 31, 2004>
(6)Matters necessary for the scope and calculation of loans and interest on payment under the provisions of paragraph (1) shall be
prescribed by the Presidential Decree. <Amended by Act No. 7317, Dec. 31, 2004>
Sub-Section 4 Inclusion of Reserve Funds and Appropriation Funds in Calculation of Deductible Expenses
Article 29 (Inclusion of Reserve Fund for Proper Purpose Businesses in Calculation of Deductible Expenses)
(1)Where a non-profit domestic corporation (limited to organizations prescribed by the Presidential Decree in case of organizations
treated as corporations) appropriates reserve funds for proper purpose businesses as deductible expenses each business year in order
to carry out the proper purpose businesses of the corporation or designated donations (hereafter referred to as proper purpose businesses,
etc. in this Article), they shall be included in deductible expenses in the calculation of the income amount for the concerned business
year within the scope of the amount of the sum of the amounts under each of the following subparagraphs: <Amended by Act No. 6558,
Dec. 31, 2001; Act No. 7005, Dec. 30, 2003; Act No. 7117, Jan. 29, 2004>
1.Interest income amount under the provisions of Article 16 (1) 1 through 11 of the Income Tax Act;
2.Distributed funds of investment trust proceeds under the provisions of Article 17 (1) 5 of the Income Tax Act;
3. Interest amount generated by loans to members or associates for welfare projects of non-profit domestic corporations established
under special Acts; and
4.The amount obtained by multiplying the income from profit-making businesses other than under subparagraphs 1 through 3 by 50/100
(80/100 for a corporation which is established under the Act on the Establishment and Operation of Public-Service Corporations and
in which not less than 50/100 of the amount used for the proper purpose businesses is spent for the purpose of scholarships).
(2)Where a non-profit domestic corporation uses the reserve fund for proper purpose businesses appropriated as deductible expenses
under the provisions of paragraph (1) for proper purpose businesses, etc., it shall set off the amount in order beginning with the
business reserve funds for education appropriated for the business year. In this case, where there is a positive balance in the reserve
fund for proper purpose businesses as of the last day of the immediately prior business year and the amount spent for proper purpose
businesses in the concerned business year, the amount shall be deemed as having been spent from the reserve fund for proper purpose
businesses to be set off for the concerned business year, and the provisions of paragraph (1) shall apply accordingly.
(3)Where a non-profit domestic corporation with a balance in the reserve fund for proper purpose businesses included in the calculation
of deductible expenses under the provisions of paragraph (1) comes to fall under one of the following subparagraphs, the balance
shall be included in gross income in the calculation of the income amount for the business year which includes the date on which
such cause occurs:
1.Where it is dissolved;
2.Where the proper purpose businesses are all discontinued;
3.Where the approval of an organization treated as a corporation is cancelled or it is changed to a resident under the provisions
of Article 13 (3) of the Framework Act on National Taxes; and
4.Where the reserve funds for proper purpose businesses, etc. appropriated as losses are not used for proper purpose businesses by
the date on which 5 years pass from the last day of the business year (limited to the balance not used within 5 years).
(4)Where the balance of reserve funds for proper purpose businesses is included in the calculation of gross income under the provisions
of paragraph (3) 4, an appropriate amount of interest calculated under the conditions as prescribed by the Presidential Decree shall
be added to the corporate tax for the concerned business year and paid.
(5)A non-profit domestic corporation which wishes to be subject to the provisions of paragraph (1) shall keep in custody a detailed
statement on the appropriation and expenditure of the concerned reserve fund and submit it to the chief of the district tax office
having jurisdiction over the place of tax payment under the conditions as prescribed by the Presidential Decree. <Amended by Act
No. 7117, Jan. 29, 2004>
(6)Matters necessary for the scope of proper purpose businesses and the calculation of income generated by profit-making businesses
under the provisions of paragraph (1) shall be prescribed by the Presidential Decree.
Article 30 (Inclusion of Liability Reserve Fund, etc. in Calculation of Deductible Expenses)
(1) Where a domestic corporation operating an insurance business under the provisions of the Insurance Business Act and other Acts
has appropriated the liability reserve fund and contingency reserve fund as deductible expenses for each business year, they shall
be included in deductible expenses in the calculation of the income amount fore the concerned business year within the scope of the
amount calculated under the conditions as prescribed by the Presidential Decree.
(2) The liability reserve fund included in the calculation of deductible expenses under the provisions of paragraph (1) shall be included
in gross income in the calculation of the income amount for the following business year.
(3) A domestic corporation which wishes to be subject to the provisions of paragraph (1) shall submit a detailed statement on the
concerned reserve fund to the chief of the district tax office having jurisdiction over the place of tax payment under the conditions
as prescribed by the Presidential Decree.
(4) Matters necessary for the disposition of the contingency reserve fund included in the calculation of deductible expenses under
the provisions of paragraph (1) shall be prescribed by the Presidential Decree.
Article 31 (Inclusion of Policyholder Dividend Reserve Fund in Calculation of Deductible Expenses)
(1) Where a domestic corporation operating an insurance business appropriates a policyholder dividend reserve fund in order to pay
dividend to insurance policyholders as losses for each business year, this shall be included in deductible expenses in the calculation
of the income amount for the concerned business year within the scope of the amount calculated under the conditions as prescribed
by the Presidential Decree.
(2) Where a domestic corporation which has included the policyholder dividend reserve funds in the calculation of deductible expenses
under the provisions of paragraph (1) pays dividends to an insurance policyholder, it shall set them off in order beginning with
the policyholder dividend reserve fund appropriated for the business year.
(3) The policyholder dividend reserve funds included in the calculation of deductible expenses under the provisions of paragraph (1)
shall be set off under the provisions of paragraph (2) until the date on which 3 years have passed from the last day of the concerned
business year, and the balance remaining shall be included in gross income in the calculation of the income amount for the business
year which contains the date on which 3 years have passed.
(4) Where a balance of policyholder dividend reserve funds is included in gross income pursuant to the provisions of paragraph (3),
an amount equivalent to the interest computed pursuant to the Presidential Decree shall be paid in addition to the corporate tax
for the corresponding business year. <Newly Inserted by Act No. 6293, Dec. 29, 2000>
(5) Where a domestic corporation that included a balance of its policyholder dividend reserve fund in its deductible expenses pursuant
to the provisions of paragraph (1) comes to fall under any of the following subparagraphs, the balance shall be included in its gross
income for the business year which includes the date on which such events occur:
1.Where it is dissolved: Provided, That where it is dissolved due to a merger and the balance is taken over by the succeeding corporation
that operates insurance business, this shall not apply; and
2.Where its license for insurance business is revoked.
(6) In applying the provisions of paragraphs (2) through (5), the amount taken over by the merged corporation under the provisions
of the proviso of paragraph (5) 1 shall be deemed to have been included in its deductible expenses by the merged corporation in the
business year where the extinguished corporation included the same in its deductible expenses. <Amended by Act No. 6293, Dec.
29, 2000>
(7) A domestic corporation that wishes to be subject to the provisions of paragraph (1) shall submit a detailed written statement
on the corresponding reserve to the chief of the district tax office having jurisdiction over the place of tax payment under the
conditions as provided in the Presidential Decree.
Article 32 Deleted.
<by Act No. 6293, Dec. 29, 2000>
Article 33 (Inclusion of Allowance for Severance and Retirement Benefits in Calculation of Deductible Expenses)
(1)Where a domestic corporation appropriates an allowance for severance and retirement benefits in order to pay severance and retirement
benefits to officers or employees as deductible expenses for each business year, this shall be included in the calculation of deductible
expenses in the calculation of the income amount for the concerned business year within the scope of the amount calculated under
the conditions as prescribed by the Presidential Decree.
(2) Where a domestic corporation which includes the allowance for severance and retirement benefits in the calculation of deductible
expenses under the provisions of paragraph (1) pays severance and retirement benefits to an officer or employee, it shall pay them
first from the concerned allowance for severance and retirement benefits.
(3) Where a domestic corporation which includes the allowance for severance and retirement benefits in the calculation of deductible
expenses under the provisions of paragraph (1) is merged or divided, the allowance for severance and retirement benefits of the said
corporation as of the date of the registration of the merger or the date of the registration of the division which is transferred
to the merged corporation, the corporation established by division, or counterpart corporation to the division and merger (hereinafter
referred to as a merged corporation, etc. ) shall be deemed the allowance for severance and retirement benefits of the merged corporation
as of the date of the registration of the merger or the date of the registration of the division. <Amended by Act No. 6558, Dec.
31, 2001>
(4) Where a businessman comprehensively transfers his business to a domestic corporation, the provisions of paragraph (3) shall apply
mutatis mutandis.
(5) A domestic corporation which wishes to be subject to the provisions of paragraph (1) shall submit a detailed statement on the
allowance for severance and retirement benefits to the chief of the district tax office having jurisdiction over the place of tax
payment under the conditions as prescribed by the Presidential Decree.
(6) Matters necessary for the disposition of the allowance for severance and retirement benefits under the provisions of paragraphs
(1) through (4) shall be prescribed by the Presidential Decree.
Article 34 (Inclusion of Bad Debt Allowance, etc. in Calculation of Deductible Expenses)
(1) Where a domestic corporation appropriates a bad debt allowance in order to cover bad debts from credit accounts, loans, and other
corresponding debentures as deductible expenses for each business year, they shall be included in deductible expenses in the calculation
of the income amount for the concerned business year within the scope of the amount calculated under the conditions as prescribed
by the Presidential Decree.
(2)The amounts of bonds which a domestic corporation possesses and which cannot be collected due to the obligor s bankruptcy and other
causes as prescribed by the Presidential Decree (hereafter referred to as bad debt expenses in this Article) shall be included
in deductible expenses in the calculation of the income amount for the concerned business year.
(3) The provisions of paragraphs (1) and (2) shall not apply to bonds falling under any of the following subparagraphs:
1.Claims for compensation arising from guarantees of obligation (excluding guarantees of obligation as prescribed by the Presidential
Decree); and
2.Payments falling under Article 28 (1) 4 (b).
(4) In case that any domestic corporation that appropriates bad debt allowance on the book as deductible expenses in accordance with
paragraph (1) and has bad debt expense accruing thereto under paragraph (2), such bad debt expenses shall be offset by its bad debt
allowance first and then the remaining amount of such bad debt allowance after offsetting such bad debt expenses shall be included
in gross income in the calculation of the income amount for the next business year. <Amended by Act No. 6558, Dec. 31, 2001>
(5) The amount of bad debt expenses included in the calculation of deductible expenses under the provisions of paragraph (2) which
is later collected shall be included in gross income in the calculation of the income amount for the business year which includes
the date of the collection.
(6) Where a domestic corporation which includes the bad debt allowance in the calculation of deductible expenses under the provisions
of paragraph (1) is merged or divided, the bad debt allowance of the said corporation as of the date of the registration of the merger
or the date of the registration of the division which is transferred to the merged corporation, etc. shall be deemed the bad debt
allowance of the merged corporation, etc. as of the date of the registration of the merger or the date of the registration of the
division. <Amended by Act No. 6558, Dec. 31, 2001>
(7) A domestic corporation which wishes to be subject to the provisions of paragraphs (1) and (2) shall submit a detailed statement
on the bad debt allowance and the bad debt expenses to the chief of the district tax office having jurisdiction over the place of
tax payment under the conditions as prescribed by the Presidential Decree.
(8) Matters necessary for credit accounts, loans, and other corresponding debentures, the scope of bad debt expenses, and the disposition
of the bad debt allowance and bad debt expenses under the provisions of paragraphs (1) and (2) shall be prescribed by the Presidential
Decree.
Article 35 (Inclusion of Allocation for Payment of Claims for Compensation in Calculation of Deductible Expenses)
(1) Where a corporation prescribed by the Presidential Decree among domestic corporations operating credit guarantee business under
Acts appropriates an allocation for payment of claims for compensation as deductible expenses each business year, this shall be included
in deductible expenses in the calculation of income amount for the corresponding business year within the scope of the amount calculated
under the conditions as prescribed by the Presidential Decree. <Amended by Act No. 6293, Dec. 29, 2000>
(2) The allocation for payment of claims for compensation included in the calculation of deductible expenses under the provisions
of paragraph (1) shall be included in gross income in the calculation of the income amount for the following business year.
(3) A domestic corporation which wishes to be subject to the provisions of paragraph (1) shall submit a detailed statement on the
allocation for payment of claims for compensation to the chief of the district tax office having jurisdiction over the place of tax
payment under the conditions as prescribed by the Presidential Decree.
(4) Matters necessary for the disposition of the allocation for payment of claims for compensation under the provisions of paragraph
(1) shall be prescribed by the Presidential Decree.
Article 36 (Inclusion of Value of Assets Acquired through Treasury Subsidies, etc. for Business in Calculation of Deductible Expenses)
(1) Where a domestic corporation receives assets, including the payment of subsidies, under the Act on Budgeting and Management of
Subsidies, the Local Finance Act and other Acts prescribed by the Presidential Decree (hereafter referred to as the National Treasury
subsidies, etc. in this Article) and uses them to acquire or improve assets used for business as prescribed by the Presidential
Decree (hereafter referred to as the assets used for business in this Article) by the last day of the business year which includes
the date of said payment, an appropriate amount for the value of the National Treasury subsidies, etc. used for the acquisition or
improvement of the assets used for business may be included in deductible expenses in the calculation of the income amount for the
concerned business year as prescribed by the Presidential Decree. <Amended by Act No. 6047, Dec. 28, 1999; Act No. 6558, Dec.
31, 2001>
(2)Where a domestic corporation which does not use the National Treasury subsidies, etc. for the acquisition or improvement of assets
used for business by the last day of the business year which includes the date of payment intends to do so within 1 year of the first
day of the following business year, the provisions of paragraph (1) shall apply mutatis mutandis, and they may be included in the
calculation of deductible expenses. In this case, uses shall be deemed intends to use . <Amended by Act No. 6047, Dec. 28,
1999>
(3)Where a domestic corporation which has included an appropriate amount for the National Treasury subsidies, etc. in the calculation
of deductible expenses under the provisions of paragraph (2) fails to use such amount for the acquisition or improvement of assets
used for business within the time limit, or discontinues its business or goes bankrupt before using it, the unused amount shall be
included in gross income in the calculation of the income amount for the business year which includes the date of the occurrence
of such cause: Provided, That the same shall not apply to a case where such domestic corporation is merged or divided and the merged
corporation, etc. succeeds the amount. In this case, the amount shall be deemed included in deductible expenses by such merged corporation,
etc. under the provisions of paragraph (2). <Amended by Act No. 6047, Dec. 28, 1999; Act No. 6558, Dec. 31, 2001>
(4) In the application of paragraph (1), if any domestic corporation receives the National Treasury subsidies, etc. in assets, not
in money and uses such assets for its business operations, the use of such assets shall be deemed that assets for the business are
acquired and used for business improvements. <Newly Inserted by Act No. 6558, Dec. 31, 2001>
(5) A domestic corporation which wishes to be subject to the provisions of paragraphs (1) and (2) shall submit a detailed statement
on the National Treasury subsidies, etc., the assets used for business acquired though the National Treasury subsidies, etc. (in
case of paragraph (2), a plan for use of the National Treasury subsidies, etc.) to the chief of the district tax office having jurisdiction
over the place of tax payment under the conditions as prescribed by the Presidential Decree. <Amended by Act No. 6047, Dec. 28,
1999>
(6)In the application of the provisions of paragraphs (1) through (3), matters necessary for the amount included in the calculation
of deductible expenses, the amount included in the calculation of gross income, and the method of calculation shall be prescribed
by the Presidential Decree.
Article 37 (Inclusion of Value of Fixed Assets Acquired through Construction Charges in Calculation of Deductible Expenses)
(1)Where a domestic corporation operating a business falling under one of the following subparagraphs is offered and receives fixed
assets which make up the facilities such as land from the persons who utilize electricity, gas, and heating, etc., or from persons
who receive benefit from the facilities in order to operate the facilities necessary for the business, or where it receives money,
etc. (hereafter referred to as construction charges in this Article) and uses it for the acquisition of fixed assets which constitute
the concerned facilities by the last day of the business year which includes the date of receiving the money, etc., the value of
the fixed assets (where they are acquired through construction charges, the appropriate amount of the construction charges used for
the acquisition of the fixed assets) may be included in deductible expenses in the calculation of the income amount for the concerned
business year under the conditions as prescribed by the Presidential Decree: <Amended by Act No. 7317, Dec. 31, 2004>
1.Electricity service business under the Electric Utility Act;
2.Urban gas business under the Urban Gas Business Act;
3.Liquefied petroleum gas replenishing business, collective liquefied petroleum gas providing business, and liquefied petroleum gas
sales business under the Safety Control and Business of Liquefied Petroleum Gas Act;
4.Integrated energy providing business under the provisions of subparagraph 2 of Article 2 of the Integrated Energy Supply Act; and
5.Business similar to those under subparagraphs 1 through 4 and as prescribed by the Presidential Decree.
(2) The provisions of Article 36 (2) and (3) shall apply mutatis mutandis with regard to the inclusion of cases of fixed assets acquired
through construction charges in the calculation of deductible expenses.
(3) A domestic corporation which wishes to be subject to the provisions of paragraphs (1) and (2) shall submit a detailed statement
on the fixed assets and construction charges received and the fixed assets acquired through construction charges (in case of paragraph
(2), a plan for use of construction charges) to the chief of the district tax office having jurisdiction over the place of tax payment
under the conditions as prescribed by the Presidential Decree.
(4) In the application of the provisions of paragraphs (1) and (2), matters necessary for the amount included in the calculation of
deductible expenses, the amount included in the calculation of gross income, and the method of calculation shall be prescribed by
the Presidential Decree.
Article 38 (Inclusion of Value of Fixed Assets Acquired through Insurance Marginal Profits in Calculation of Deductible Expenses)
(1) Where a domestic corporation receives payment of insurance money due to the destruction or damage of fixed assets and uses the
money for the acquisition of fixed assets of the same type to replace the destroyed fixed assets or for the improvement of the damaged
fixed assets (including the improvement of acquired fixed assets) by the last day of the business year which includes the date of
the payment, an appropriate amount for the insurance marginal profits used for the acquisition or improvement of fixed assets may
be included in deductible expenses in the calculation of the income amount for the concerned business year as prescribed by the Presidential
Decree.
(2)The provisions of Article 36 (2) and (3) shall apply mutatis mutandis with regard to the inclusion of cases of acquisition or improvement
of fixed assets through insurance marginal profits in the calculation of deductible expenses. In this case, 1 year in Article 36
(2) shall be deemed 2 years .
(3) A domestic corporation which wishes to be subject to the provisions of paragraphs (1) and (2) shall submit a detailed statement
on the insurance money received and the fixed assets acquired or improved through insurance marginal profits (in case of paragraph
(2), a plan for use of insurance marginal profits) to the chief of the district tax office having jurisdiction over the place of
tax payment under the conditions as prescribed by the Presidential Decree.
(4) In the application of the provisions of paragraphs (1) and (2), matters necessary for the amount included in the calculation of
deductible expenses, the amount included in the calculation of gross income, and the method of calculation shall be prescribed by
the Presidential Decree.
Article 39 Deleted.
<by Act No. 6558, Dec. 31, 2001>
Sub-Section 5 Period of Accrual of Gross Income and Deductible Expenses
Article 40 (Business Year of Accrual of Gross Income and Deductible Expenses)
(1) The business year of accrual of gross income and deductible expenses of a domestic corporation shall be the business year which
includes the date on which the concerned gross income and deductible expenses are settled.
(2) Matters necessary for the scope of the business year of accrual of gross income and deductible expenses under the provisions of
paragraph (1) shall be prescribed by the Presidential Decree.
Article 41 (Acquisition Value of Assets)
(1) The acquisition value of assets acquired by a domestic corporation through purchase, production, exchange, and donation shall
be the amounts under each of the following subparagraphs:
1.For assets purchased from another person, the amount of the total of the purchase price and any incidental costs;
2.For assets acquired through the corporation s own manufacture, production, construction, or other corresponding method, the amount
of the total of the cost of production and any incidental costs; and
3.For assets acquired other than those under subparagraphs 1 and 2, the amount as prescribed by the Presidential Decree.
(2) Matters necessary for the calculation of the acquisition value of assets, such as the scope of purchase price and incidental costs,
under the provisions of paragraph (1) shall be prescribed by the Presidential Decree.
Article 42 (Evaluation of Assets and Liabilities)
(1) Where the book value of assets and liabilities possessed by a domestic corporation increases or decreases (excluding depreciation;
hereafter referred to as evaluation in this Article), the book value of the concerned assets and liabilities in the calculation
of the income amount for the business year which includes the date of the evaluation and each subsequent business year shall be the
value before the evaluation: Provided, That this shall not apply to cases falling under any of the following subparagraphs:
1.Deleted; <by Act No. 6558, Dec. 31, 2001>
2.Evaluation of fixed assets under the Insurance Business Act and other Acts and subordinate statutes (limited to amount of increase);
and
3.Evaluation of inventory and other assets and liabilities as prescribed by the Presidential Decree.
(2) Assets and liabilities under the provisions of paragraph (1) 3 shall be evaluated separately as assets or liabilities by the method
as prescribed by the Presidential Decree.
(3) For assets falling under any of the following subparagraphs, the book value may be reduced by the method as prescribed by the
Presidential Decree, notwithstanding the provisions of paragraphs (1) and (2): <Amended by Act No. 6558, Dec. 31, 2001>
1.Inventory which cannot be sold at the normal price due to damage, spoilage, or other causes;
2.Fixed assets which are damaged or broken due to natural disasters, fires, or other causes as prescribed by the Presidential Decree;
3.Stocks as prescribed by the Presidential Decree for which the issuing corporation does not honor the concerned stocks; and
4.In case any corporation that has issued stocks, etc. goes bankrupt, the relevant stocks, etc.
(4) A domestic corporation which evaluates assets and liabilities under the provisions of paragraphs (2) and (3) shall submit a detailed
statement on the evaluation of the concerned assets and liabilities to the chief of the district tax office having jurisdiction over
the place of tax payment under the conditions as prescribed by the Presidential Decree.
(5) Matters necessary for the disposition of evaluation marginal profits and evaluation marginal losses arising from the evaluation
of assets and liabilities under the provisions of paragraphs (2) and (3) shall be prescribed by the Presidential Decree.
Article 43 (Application of Corporate Accounting Standards and Practices)
In the calculation of the income amount for each business year of a domestic corporation, where the concerned corporation applies
corporate accounting standards which are generally acknowledged as fair and proper in the business year of accrual of gross income
and deductible expenses, and in the acquisition and evaluation of assets and liabilities, or continuously applies such practices,
the concerned corporate accounting standards or practices shall be followed except as otherwise provided in this Act and the Restriction
of Special Taxation Act.
Sub-Section 6 SpecialCasesconcerningMergers and Divisions
Article 44 (Inclusion of Reasonable Amount of Merger Evaluation Marginal Profits in Calculation of Deductible Expenses)
(1) For mergers which meet the conditions under each of the following subparagraphs, where the merged corporation evaluates and succeeds
to the assets of the extinguished corporation, an appropriate amount for merger evaluation marginal profits for the concerned assets
from the value of the assets acquired by succession (limited to assets prescribed by the Presidential Decree) may be included as
deductible expenses in the calculation of the income amount for the business year which includes the date of the registration of
the merger, under the conditions as prescribed by the Presidential Decree: <Amended by Act No. 6558, Dec. 31, 2001>
1.Where a merger occurs between domestic corporations which have continued to operate their businesses for one year or more as of
the date of registration of the merger;
2.Where the total amount of the price received by stockholders of an extinguished corporation in return for such merger from the merged
corporation is 95% or more of the value of the stocks; and
3.Where the merged corporation continues to operate a business it received by succession from the extinguished corporation until the
last day of the business year which includes the date of the registration of the merger.
(2) Where a merged corporation which includes an appropriate amount for merger evaluation marginal profits in the calculation of deductible
expenses under the provisions of paragraph (1) discontinues a business it acquired through succession from the extinguished corporation
within 3 years from the first day of the business year which follows the business year which includes the date of the registration
of the merger, the amount included in the calculation of deductible expenses shall be included as gross income in the calculation
of income for the business year which includes the date the business was discontinued.
(3) A merged corporation which wishes to be subject to the application of the provisions of paragraph (1) shall submit a detailed
statement on merger evaluation marginal profits to the chief of the district tax office having jurisdiction over the place of tax
payment under the conditions as prescribed by the Presidential Decree.
(4) In the application of the provisions of paragraphs (1) and (2), matters necessary for criteria for judgements regarding the continuance
or discontinuance of businesses acquired by succession, calculation of the amounts included in gross income and deductible expenses,
and the method for inclusion of gross income and deductible expenses in the calculation of income shall be prescribed by the Presidential
Decree.
Article 45 (Succession to Losses Carried Forward at Time of Merger)
(1) For mergers which meet the conditions under each of the following subparagraphs, where the merged corporation succeeds to the
assets of the extinguished corporation at book value, as of the date of the registration of the merger, the deficits of the extinguished
corporation under the provisions of subparagraph 1 of Article 13 shall be deemed the deficits of the merged corporation, and shall
be deducted from the calculation of tax base for each business year of the merged corporation as prescribed by the Presidential Decree
within the scope of the amount of income generated by the business acquired by succession: <Amended by Act No. 6558, Dec. 31,
2001>
1.Where mergers fall under each subparagraph of Article 44 (1);
2.Where the stocks, etc. which the stockholders, etc. of an extinguished corporation receive from a merged corporation are 10% or
more of the total stocks issued by the merged corporation or total investment as of the date of registration of the merger; and
3.Where a merged corporation maintains separate accounting under the provisions of Article 113 (3).
(2) Where a merged corporation which deducted the deficits of the extinguished corporation under the provisions of paragraph (1) discontinues
a business acquired by succession from the extinguished corporation within 3 years of the first day of the business year which follows
the business year which includes the date of the registration of the merger, the total amount deducted as deficits shall be included
as gross income in the calculation of the income amount for the business year which contains the date on which the business was discontinued.
(3) Where a merger is deemed to be a merger undertaken for the purpose of unjustly reducing tax payments as prescribed by the Presidential
Decree, the merged corporation may not deduct the deficits under the provisions of subparagraph 1 of Article 13 in the calculation
of the tax base for each business year.
(4) In the application of the provisions of paragraphs (1) through (3), matters necessary for criteria for judgements regarding the
discontinuance of businesses acquired by succession, the calculation of deficits to be deducted, and the inclusion of deducted deficits
as gross income in the calculation of the tax base for each business year shall be prescribed by the Presidential Decree.
Article 46 (Inclusion of Reasonable Amount for Division Evaluation Marginal Profits in Calculation of Deductible Expenses)
(1) For divisions which meet the conditions under each of the following subparagraphs (excluding spinoff), where the corporation established
through division or the corporation which is the counterpart of the division and merger evaluates and succeeds to the assets of the
divided corporation or the counterpart corporation to a corporation extinguished through division and merger, an appropriate amount
for division evaluation marginal profits for the concerned assets from the value of the assets acquired by succession (limited to
assets prescribed by the Presidential Decree) may be included as deductible expenses in the calculation of the income amount for
the business year which includes the date of the registration of the division, under the conditions as prescribed by the Presidential
Decree:
1.Where a domestic corporation which has continuously operated a business for 5 years or more as of the date of the registration of
the division is divided under the conditions as prescribed by the Presidential Decree;
2.Where the full amount of the cost of division received from the corporation established through division or the corporation which
is the counterpart of the division and merger by the stockholders of a divided corporation or counterpart corporation to a corporation
extinguished through division and merger (in case of division and merger, not less than the rate provided in Article 44 (1) 2) is
paid in stocks, and said stocks are allocated in proportion to the stocks in the divided corporation or counterpart corporation to
a corporation extinguished through division and merger held by each stockholder; and
3.Where the corporation established by division or the counterpart corporation to a division and merger continues to operate the business
acquired from the divided corporation or the counterpart corporation to a corporation extinguished through division and merger by
succession until the last day of the business year which includes the date on which the division was registered.
(2) Where any corporation established by a division or any counterpart corporation to a division and merger (referring to a merged
corporation in case any corporation established by a division or any counterpart corporation to a division and merger is merged with
another corporation) which includes an appropriate amount for division evaluation marginal profits in the calculation of deductible
expenses under the provisions of paragraph (1) discontinues a business it acquired through succession from a divided corporation
or a counterpart corporation to a corporation extinguished through division and merger within 3 years from the first day of the business
year following the business year which includes the date of the registration of the division, the amount included in deductible expenses
(referring to an amount equivalent to the amount of deductible expenses in case that any corporation established by a division or
a counterpart corporation to a division and merger is merged with another corporation and the merged corporation succeeds the amount
included in deductible expenses under paragraph (1) from such corporation established by a division or such counterpart corporation
to the division and merger) shall be included as gross income in the calculation of income for the business year which includes the
date the business was discontinued. In this case, if the merged corporation succeeds again the business that the corporation established
by a division or the counterpart corporation to the division and merger has succeeded from the divided corporation or the counterpart
corporation to the extinguished corporation that is merged through a division, such business shall not be deemed discontinued. <Amended
by Act No. 6558, Dec. 31, 2001>
(3) A corporation established by division or a counterpart corporation to a division and merger which wishes to be subject to the
application of the provisions of paragraph (1) shall submit a detailed statement on division evaluation marginal profits to the chief
of the district tax office having jurisdiction over the place of tax payment under the conditions as prescribed by the Presidential
Decree.
(4) In the application of the provisions of paragraphs (1) and (2), matters necessary for criteria for judgements regarding the continuance
or discontinuance of businesses acquired by succession, calculation of the amounts included in gross income and deductible expenses,
and the method for inclusion of income and deductible expenses in the calculation of income shall be prescribed by the Presidential
Decree.
Article 47 (Inclusion of Reasonable Amount for Asset Transfer Marginal Profits Due to Spinoff in Calculation of Deductible Expenses)
(1) Where a divided corporation acquires the stocks of a corporation established by a division or a counterpart corporation to a division
or merger and the conditions under each subparagraph of Article 46 (1) are met (in case of subparagraph 2 of the same paragraph,
the full amount must be in stocks), an appropriate amount for assets transfer marginal profits generated by the spinoff from the
value of the stocks concerned may be included as deductible expenses in the calculation of income for the business year which contains
the date of the registration of the spinoff, under the conditions as prescribed by the Presidential Decree. <Amended by Act No.
6558, Dec. 31, 2001>
(2) Where any corporation established by a division or any counterpart corporation to a division and merger (referring to any merged
corporation in case that any corporation established by a division or any counterpart corporation to a division and merger is merged
with another corporation) ceases to do the business it succeeds from any divided corporation that includes an amount equivalent to
transfer marginal profits in deductible expenses under paragraph (1), within 3 years from the date of the commencement of the business
year following the business year that includes the date on which such a division registration is made, the amount that is included
in deductible expenses under paragraph (1) (referring to the amount included in deductible expenses in accordance with paragraph
(3) in case that the amount falls under the same paragraph) shall be included in gross income in the calculation of income amount
for the business year that includes the date on which the business is discontinued. In this case, any merged corporation succeeds
again the business that the corporation established by a division or the counterpart corporation to the division and merger has succeeded
from any divided corporation, such business shall not be deemed discontinued. <Amended by Act No. 6558, Dec. 31, 2001>
(3) Where any merged corporation succeeds again the business that any corporation established by a division or any counterpart corporation
to a division and merger has succeeded from a divided corporation, such divided corporation may continue to include the amount included
in deductible expenses under paragraph (1) in deductible expenses without including such amount in gross income under the conditions
as prescribed by the Presidential Decree. <Newly Inserted by Act No. 6558, Dec. 31, 2001>
(4) A divided corporation which wishes to be subject to the provisions of paragraph (1) shall submit a detailed statement on transfer
marginal profits for assets generated by the division to the chief of the district tax office having jurisdiction over the place
of tax payment under the conditions as prescribed by the Presidential Decree.
(5) In the application of the provisions of paragraphs (1) through (3), matters necessary for the calculation of transfer marginal
profits, criteria for judgement on the discontinuation of businesses acquired by succession, calculation of the amounts included
in gross income and deductible expenses, and the method for inclusion of gross income and deductible expenses in the calculation
of income shall be prescribed by the Presidential Decree. <Amended by Act No. 6558, Dec. 31, 2001>
Article 48 (Special Cases of Calculation of Income for Corporations which Continue to Exist After Division)
(1) Where a domestic corporation continues to exist after a division (excluding spinoff), in the calculation of income for the business
year which includes the date on which the division registration of the concerned divided corporation is made, the amount of income
generated by the division, notwithstanding the provisions of Article 14 (1), shall be the amount calculated by balancing the amount
under subparagraph 1 with the amount under subparagraph 2, under the conditions as prescribed by the Presidential Decree:
1.The total amount of the cost of division that stockholders of a divided corporation receive due to the division from the corporation
established by division or the counterpart corporation to a division and merger; and
2.The decrease in the divided corporation s equity capital due to division (limited to divided business category).
(2) In the application of the provisions of paragraph (1), matters necessary for calculation of income amounts generated by the division
such as the total cost of the division and the calculation of the reduction of equity capital shall be prescribed by the Presidential
Decree.
Article 49 (Succession to Assets and Liabilities upon Merger and Division)
In case of the merger or division of domestic corporations, except where provided for in this Act or other Acts, in the calculation
of the income amount and the tax base for each business year of a corporation extinguished due to a merger, divided corporation,
or counterpart corporation to a corporation extinguished through division and merger (hereinafter referred to as an extinguished
corporation, etc. ), matters necessary for dispositions of the amounts included or not included in gross income or deductible expenses
in the calculation of the amount and the succession to that amount and other assets and liabilities by the merged corporation, etc.
shall be prescribed by the Presidential Decree.
Article 50 (Inclusion of Reasonable Amount for Asset Transfer Marginal Profits due to Exchange in Calculation of Deductible Expenses)
(1)Where assets as prescribed by the Presidential Decree which are fixed assets used directly for a business as prescribed by the
Presidential Decree by a domestic corporation which operates the concerned business for 2 years or more (hereafter referred to as
the fixed assets for business use in this Article) are exchanged for the same type of fixed assets for business use directly used
for the concerned business for 2 years or more by another domestic corporation (hereafter referred to as the assets acquired by
exchange in this Article) other than a person with a special relationship under the provisions of Article 52 (1) (including exchange
among many corporations as prescribed by the Presidential Decree), an appropriate amount for transfer marginal profit of the fixed
assets for business use generated by the exchange from the value of assets acquired by exchange may be included as deductible expenses
in the calculation of the income amount for the concerned business year under the conditions as prescribed by the Presidential Decree.
(2)The provisions of paragraph (1) shall apply only where a domestic corporation uses assets acquired by exchange for the same use
of that of immediately prior to the exchange until the last day of the business year which includes the date of the exchange.
(3)A domestic corporation which wishes to be subject to the provisions of paragraph (1) shall submit a detailed statement on the exchange
of assets to the chief of the district tax office having jurisdiction over the place of tax payment under the conditions as prescribed
by the Presidential Decree.
(4)In the application of the provisions of paragraph (1), matters necessary for the amount included in deductible expenses and the
method for inclusion of such amount in the calculation of gross income shall be prescribed by the Presidential Decree.
Sub-Section 7 Tax Exemption and Income Deduction
Article 51 (Non-Taxable Income)
Of the income of a domestic corporation for each business year, corporate tax shall not be levied on income accrued from the trust
estate of a charitable trust.
Article 51-2 (Income Deduction for Special Purpose Companies, etc.)
(1)Where any domestic corporation falling under any of the following subparagraphs pays not less than 90/100 of profits available
for dividends prescribed by the Presidential Decree, the amount shall be deducted from the calculation of income amount of the relevant
business year: <Amended by Act No. 6293, Dec. 29, 2000; Act No. 6558, Dec. 31, 2001; Act No. 7005, Dec. 30, 2003; Act No. 7117,
Jan. 29, 2004; Act No. 7317, Dec. 31, 2004>
1.A special purpose company under the Asset-Backed Securitization Act;
2.An investment company, private equity fund, and special purpose company pursuant to the Act on Business of Operating Indirect Investment
and Assets;
3.A corporate restructuring investment company under the Corporate Restructuring Investment Companies Act;
4.A real estate investment company for corporate restructuring and real estate investment company for consigned-management under the
Real Estate Investment Company Act;
5.A ship investment company pursuant to the Ship Investment Company Act; and
6.An investment company similar to those as provided in subparagraphs 1 through 5 which meets the following requirements:
(a) Its assets shall be used for an investment in plants and infrastructures, the development of resources, or a specific business
requiring a considerable time and money, whose profits are to be distributed to its stockholders;
(b) It shall have no business office, other than the headquarters, and no staff member and full-time officer;
(c) It shall exist for a limited period of not less than 2 years;
(d) It shall be a stock company under the Commercial Act or any other Act which is established in the form of incorporation by promoters;
(e) Its promoters shall not fall under any subparagraph of Article 4 (2) of the Corporate Restructuring Investment Company Act and
shall meet the requirements as set by the Presidential Decree;
(f) Its directors shall not fall under any subparagraph of Article 12 of the Corporate Restructuring Investment Company Act;
(g) Its auditor shall meet Article 17 of the Corporate Restructuring Investment Company Act. In this case, the corporate restructuring
investment company in the said Article shall be deemed the company ; and
(h) It shall satisfy the requirements as set by the Presidential Decree for the size of the capital and the report, etc. of the entrustment
and establishment of the asset management business and fund management business.
(2)Any person who intends to be subject to the application of the provisions of paragraph (1) shall file an application for income
deduction under the conditions as prescribed by the Presidential Decree.
[This Article Newly Inserted by Act No. 6047, Dec. 28, 1999]
Sub-Section 8 Special Cases concerning Calculation of Income Amount
Article 52 (Repudiation of Wrongful Calculation)
(1) Where the chief of the district tax office having jurisdiction over the place of tax payment or the Commissioner of the competent
Regional Tax Office deems that the tax burden of a domestic corporation has been unjustly reduced through the wrongful calculation
of the income amount of the corporation in transactions with person with a special relationship as prescribed by the Presidential
Decree (hereinafter referred to as a person with a special relationship ), he may calculate the income amount for each business
year of the concerned corporation without regard to the wrongful calculation of the income amount of the corporation (hereinafter
referred to as wrongful calculation ).
(2) In the application of the provisions of paragraph (1), the standard for judgement shall be the prices applied or to be applied
in sound and generally-accepted practice and related activities in normal transactions between persons without a special relationship
(including premium rates, interest rates, rental rates, and exchange rates and other corresponding rates; hereafter referred to as
the market price in this Article).
(3) A domestic corporation shall submit a detailed statement reporting the particulars of transactions with a person with a special
relationship for each business year to the chief of the district tax office having jurisdiction over the place of tax payment under
the conditions as prescribed by the Presidential Decree.
(4) In the application of the provisions of paragraphs (1) through (3), matters necessary for the forms of wrongful calculation and
the assessment of market price shall be prescribed by the Presidential Decree.
Article 53 (Special Cases on Calculation of Income Amount from Transactions with Foreign Corporations, etc.)
(1) Where treaties are concluded between Korea and other countries in order to prevent double taxation (hereinafter referred to as
tax treaties ) on the transaction amount of transactions with foreign branches of domestic corporations or non-resident or foreign
corporations, the chief of the district tax office having jurisdiction over the place of tax payment or the Commissioner of the competent
Regional Tax Office may adjust and calculate the income amount for each business year of the corporation in accordance with the provisions
of the mutual agreed treaties.
(2) In the application of the provisions of paragraph (1), matters necessary for the application for settlement of the income amount
of a domestic corporation and the settlement procedures shall be prescribed by the Presidential Decree.
Article 54 (Regulations for Calculation of Income Amount)
Matters necessary for the calculation of the income amount for each business year of a domestic corporation which are not provided
for in this Act shall be prescribed by the Presidential Decree.
SECTION 2 Calculation of Tax Amount
Article 55 (Tax Rates)
(1) The corporate tax amount on the income for each business year of a domestic corporation shall be the amount calculated by applying
the following tax rates to the tax base under the provisions of Article 13 (hereinafter referred to as the calculated tax amount
, and in case that there is the corporate tax to be levied on the income accruing from the transfer of land, etc. under Article 55-2,
it shall be the sum of the amounts): <Amended by Act No. 6558, Dec. 31, 2001; Act No. 7005, Dec. 30, 2003>
Tax Base
Tax Rate
100,000,000 won or less
13/100 of tax base
More than 100,000,000 won
13,000,000 won ï¼?
25/100 of the amount in excess of 100,000,000 won
(2) For corporate tax on the income for each business year of a domestic corporation less than one year old, the amount obtained by
dividing the amount calculated for the business year by application of the provisions of Article 13 by the number of months in the
business year and multiplying by 12 shall be the tax base for the business year, and the tax amount obtained by multiplying the tax
amount calculated under the provisions of paragraph (1) by the number of months in the business year divided by 12 shall be the tax
amount. In the case, the calculation of the number of months shall be prescribed by the Presidential Decree.
Article 55-2 (Special Cases for Taxation on Income Accruing from Land Transfer)
(1)In case where a domestic corporation has transferred land and building (including any facilities and structures attached to such
building; hereafter referred to as land, etc. in this Article and Article 95-2) falling under any of the following subparagraphs,
it shall pay the tax amount calculated pursuant to the following subparagraphs in addition to the corporate tax amount calculated
by applying the tax rate pursuant to the provisions of Article 55 to the tax base pursuant to the provisions of Article 13 as corporate
tax on the transfer income of land, etc.: <Amended by Act No. 7005, Dec. 30, 2003>
1.In case the average price of land during the immediately preceding quarter in the area prescribed by the Presidential Decree, which
was investigated by the Minister of Construction and Transportation in accordance with the provisions of Article 125 of the National
Land Planning and Utilization Act, rises by not less than 3/100 compared with that during the quarter before the immediately preceding
quarter, or rises by not less than 10/100 compared with that during the same quarter of the preceding year, and any land, etc. located
in such area are transferred, a tax amount calculated by multiplying 10/100 (20/ 100 for any income accruing from the transfer of
unregistered land, etc.) by any income accruing from such transfer; and
2.In case a house(including annexed land) prescribed by the Presidential Decree has been transferred, tax amount calculated by multiplying
the transfer income of land, etc. by 30/100 (40/100 for any income accruing from transfer of unregistered land, etc.).
(2) The provisions of paragraph (1) shall not apply to any transfer income of the land, etc. falling under any of the following subparagraphs:
Provided, That the provisions of paragraph (1) shall apply to any transfer income of any unregistered land, etc.: <Amended by
Act No. 6852, Dec. 30, 2002>
1.Income accruing from the disposal of land, etc. that is made by the adjudication of bankruptcy;
2.Income accruing from the exchange, separation or integration of farmland that is cultivated by a corporation and prescribed by the
Presidential Decree; and
3.Income accruing from the grounds, prescribed by the Presidential Decree, including any land substitution disposition taken in accordance
with the Act on the Maintenance and Improvement of Urban Areas and Dwelling Conditions for the Residents and other Acts.
(3) The term unregistered land, etc. in paragraphs (1) and (2) means the land, etc. that any corporation transfers without registering
its acquisition thereof: Provided, That the same shall not apply to the land, etc. which is acquired on the condition of long-term
installment and of which the contract term makes it impossible to register its acquisition at the time when it is transferred, and
other land, etc. prescribed by the Presidential Decree.
(4) The transfer income of land, etc. shall be an amount obtained by subtracting the book value thereof at the time of transfer from
the transfer amount of land, etc.
(5) In the application of paragraphs (1) through (4), necessary matters concerning the method of calculating the transfer income of
land, etc. in the case of any loss from the transfer of such land during the relevant business year and the business year of accrual
of any profit or loss from the transfer of land, etc. shall be prescribed by the Presidential Decree.
[This Article Newly Inserted by Act No. 6558, Dec. 31, 2001]
Article 56 Deleted.
<by Act No. 6558, Dec. 31, 2001>
Article 57 (Deduction of Tax Amount Paid in Foreign Country)
(1) Where the tax base for each business year of a domestic corporation includes income generated in a foreign country, and an amount
of foreign corporate tax on income generated in a foreign country as prescribed by the Presidential Decree (hereafter referred to
as the foreign corporate tax amount in this Article) has been paid or will be paid, the corporation may choose to be subject to
the application of a method under one of the following subparagraphs, notwithstanding the provisions of subparagraph 1 of Article
21: <Amended by Act No. 6558, Dec. 31, 2001>
1.Method of deducting the amount of the foreign corporate tax up to the limit (hereafter referred to as the deduction limit in this
Article) of the amount obtained by multiplying the corporate tax amount for the concerned business year (excluding any corporate
tax amount on any income accruing from the transfer of land, etc.) calculated under the provisions of Article 55 by the percentage
of the tax base for the concerned business year constituted by income generated in a foreign country (where the tax amount is reduced
or exempted under the Restriction of Special Taxation Act and other Acts and subordinate statutes, the percentage as prescribed by
the Presidential Decree) from the corporate tax amount for the concerned business year; and
2.Method of including the foreign corporate tax amount paid or to be paid on income generated in a foreign country in deductible expenses
in the calculation of the income amount for each business year.
(2)Where a foreign corporate tax amount in excess of the deduction limit is paid or will be paid to a foreign government, the amount
in excess may be carried forward in each business year within 5 years of the first day of the business year following the concerned
business year, and may be deducted within the scope of the deduction limit for each business year in which it is carried forward.
(3)The appropriate amount of the reduced or exempted amount of corporate tax on income a domestic corporation generates in a foreign
country which is a party to a tax treaty shall be the foreign corporate tax amount of the tax deduction amount or the amount included
in the calculation of deductible expenses under the provisions of paragraph (1), within the scope as prescribed by the concerned
tax treaty.
(4)Where the income amount for each business year of a domestic corporation includes profits from dividends or distribution of surplus
funds from a foreign company (hereafter referred to as revenue dividends amount in this Article), of the foreign corporate tax
amount levied on the income of the foreign subsidiary, the amount corresponding to the concerned revenue dividends calculated as
prescribed by the Presidential Decree shall be deemed the foreign corporate tax amount deducted or included in the calculation of
deductible expenses under the provisions of paragraph (1), within the scope of as prescribed by the tax treaty.
(5)The term foreign subsidiary in paragraph (4) means a foreign corporation with 20% or more of the total number of stocks issued
by or total amount of financing invested by a domestic corporation and which meets the requirements as prescribed by the Presidential
Decree.
(6)Matters necessary for the tax amount deducted or included in the calculation of deductible expenses under the provisions of paragraphs
(1) through (4) shall be prescribed by the Presidential Decree.
Article 58 (Tax Deduction for Losses in Disasters)
(1)Where a domestic corporation loses 30% or more of the total amount of assets for each business year as prescribed by the Presidential
Decree (hereafter referred to as the total amount of assets in this Article) due to natural disasters and other accidents (hereinafter
referred to as disasters ) and it is deemed difficult for it to pay taxes, the amount (limited to the value of lost asset) calculated
by multiplying the corporate tax amount under each of the following subparagraphs by the percentage of the total amount of assets
prior to the loss constituted by the value of the lost assets shall be deducted from the tax amount. In this case, the value of land
shall not be included in the value of the assets: <Amended by Act No. 7317, Dec. 31, 2004>
1.Corporate tax not yet paid as of the day of the occurrence of the disaster and corporate tax which must be paid (including additional
charges); and
2.Corporate tax on income for the business year which includes the date of the occurrence of the disaster.
(2)A domestic corporation which wishes to receive a tax amount deduction under the provisions of paragraph (1) shall apply to the
chief of the district tax office having jurisdiction over the place of tax payment under the conditions as prescribed by the Presidential
Decree.
(3)Where the chief of the district tax office having jurisdiction over the place of tax payment receives an application for corporate
tax deduction referred to in paragraph (1) 1 under the provisions of paragraph (2) (excluding those whose time limit for reporting
has not passed), he shall determine the amount to be deducted from tax amount and notify the concerned corporation thereof.
(4)In the application of the provisions of paragraphs (1) through (3), matters necessary for the tax deduction amount for disasters
such as the calculation of the percentage of lost assets shall be prescribed by the Presidential Decree.
Article 58-2 (Tax Deduction for Agricultural Income Tax)
(1)The agricultural income tax amount paid by a domestic corporation for each business year shall be deducted from its corporate tax
amount payable for the corresponding business year: Provided, That where the agricultural income tax amount exceeds its corporate
tax amount, such excess amount shall not be refunded.
(2)A domestic corporation that intends to get tax deducted pursuant to paragraph (1) shall apply to the chief of the district tax
office having jurisdiction over the place of tax payment under the conditions as prescribed by the President Decree.
[This Article Newly Inserted by Act No. 6293, Dec. 29, 2000]
Article 58-3 (Tax Deduction following Correction due to Wrongful Accounting Handling)
(1) If a domestic corporation has received correction pursuant to the provisions of Article 66 (2) 4, the overpaid tax amount shall
be orderly deducted from the corporate tax amount of each business year that concludes within 5 years from the starting date of the
business year to which the correction date belongs.
(2) In applying the provisions of paragraph (1), in case the domestic corporation has payable tax for a business year before the business
year where the correction date belongs according to a revised report pursuant to the provisions of Article 45 of the Framework Act
on National Taxes, the overpaid tax pursuant to the provisions of paragraph (1) shall be deducted from the payable tax beforehand.
(3) The concrete methods and procedures relating to tax deduction pursuant to paragraphs (1) and (2) shall be prescribed by the Presidential
Decree.
[This Article Newly Inserted by Act No. 7005, Dec. 30, 2003]
Article 59 (Calculation of Amount of Tax Reduction/Exemption and Tax Deduction)
(1) In the application of this Act and other Acts, where the provisions on the reduction and exemption of corporate tax and the provisions
on the tax deduction amount apply simultaneously, they shall apply in the order of the following subparagraphs, except where provided
otherwise. In this case, where the amount of the sum of subparagraphs 1 and 2 excesses the corporate tax amount (excluding the corporate
tax on income accruing from the transfer of land, etc. and additional tax) to be paid by the corporation, the amount in excess shall
be deemed not to exist: <Amended by Act No. 6558, Dec. 31, 2001; Act No. 7005, Dec. 30, 2003>
1.Reduction and exemption (including exemption) of the tax amount on income for each business year;
2.Unconfirmed tax deduction amount of the deduction carried forward;
3.Confirmed tax deduction amount of the deduction carried forward.
In this case, where the tax deduction amount generated during the concerned business year and the carried forward amount not deducted
are together, the carried forward amount not deducted shall be deducted first; and
4. Tax deduction pursuant to the provisions of Article 58-3. In case there are tax deduction concerned and tax deduction carried forward,
the tax deduction carried forward shall be deducted beforehand.
(2) Where taxes are reduced or exempted under the provisions of paragraph (1) 1, the amount of the tax reduction or exemption shall
be the amount obtained by multiplying the calculated tax amount (excluding the corporate tax on income accruing from the transfer
of land, etc.) by the percentage (where it is in excess of 100%, it shall be 100%) of the tax base under the provisions of Article
13 constituted by the reduced or exempted income (in case of reduction and exemption, the amount obtained by multiplying such amount
by the percentage of the concerned reduction and exemption), except where provided otherwise. <Amended by Act No. 6558, Dec. 31,
2001>
(3) Matters necessary for the method for application to extinguished corporations, etc. which received tax reduction and exemption
and tax deduction under each subparagraph of paragraph (1) in cases of merger or division and the calculation of tax reduction and
exemption and the amount of tax deduction under the provisions of paragraphs (1) and (2) shall be prescribed by the Presidential
Decree.
SECTION 3 Report and Payment
Article 60 (Report on Tax Base, etc.)
(1) A domestic corporation with a duty to pay taxes shall report the corporate tax base and tax amount on income for the concerned
business year within 3 months of the last day of each business year to the chief of the district tax office having jurisdiction over
the place of tax payment under the conditions as prescribed by the Presidential Decree.
(2) The documents under each of the following subparagraphs shall be attached to the report under the provisions of paragraph (1):
1.The balance sheet, profits and losses invoice, and profits surplus funds disposition invoice (or deficits settlement statement)
prepared by applying corporate accounting standards mutatis mutandis;
2.The tax settlement invoice prepared under the conditions as prescribed by the Presidential Decree (hereinafter referred to as the
tax settlement invoice ); and
3.Other documents as prescribed by the Presidential Decree.
(3) The provisions of paragraph (1) shall also apply where a domestic corporation has no income or has deficits for each business
year.
(4) Where the documents under paragraph (2) 1 and 2 are not attached to a report under the provisions of paragraph (1), it shall not
be deemed a report under this Act: Provided, That this shall not apply to a nonprofit domestic corporation which is not operating
a profit-making business under the provisions of Article 3 (2) 1 and 6.
(5) Where there are errors or omissions in the report and other documents submitted under the provisions of paragraphs (1) and (2),
the chief of the district tax office having jurisdiction over the place of tax payment and the Commissioner of the competent Regional
Tax Office may request that they be corrected.
Article 61 (Special Cases concerning Appropriation of Reserve Fund as Deductible Expenses)
(1) For any domestic corporation which appropriates a reserve fund under the Restriction of Special Taxation Act in the tax settlement
invoice or for any non-profit domestic corporation which is subject to audit performed by auditors under the provisions of Article
3 of the Act on External Audit of Stock Companies and which appropriates a reserve fund for proper purpose businesses under Article
29 in the tax settlement invoice, with regard to the appropriate amount for the disposition of profits for the concerned business
year, where the concerned reserve fund is accumulated as reserves, that amount shall be deemed to be appropriated as deductible expenses.
<Amended by Act No. 6558, Dec. 31, 2001>
(2) Matters necessary for the appropriation of a reserve fund as deductible expenses and the settlement of the amount under the provisions
of paragraph (1) shall be prescribed by the Presidential Decree.
Article 62 (Special Cases concerning Tax Base Report of Non-Profit Domestic Corporations)
(1) For interest, discount amounts, and profits (excluding profits from no-business loans under Article 16 (1) 12 of the Income Tax
Act, and including distributed funds from investment trust proceeds, hereafter referred to as interest income in this Article)
under the provisions of Article 3 (2) 2, a non-profit domestic corporation may choose not to submit a tax base report on withheld
interest income under the provisions of Article 73, notwithstanding the provisions of Article 60 (1). In this case, the interest
income not reported as tax base shall not be included in the calculation of the income amount for each business year under the provisions
of Article 14. <Amended by Act No. 7005, Dec. 30, 2003>
(2) Matters necessary for the tax base report on corporate tax on the interest income of a non-profit domestic corporation and the
collection of it under the provisions of paragraph (1) shall be prescribed by the Presidential Decree.
Article 62-2 (Special Cases concerning Taxation of Income Accruing from Transfer of Assets by Non-profit Domestic Corporation)
(1) In case that any non-profit domestic corporation (excluding any non-profit domestic corporation that runs the profit-making business
in accordance with Article 3 (2) 1; hereafter the same shall apply in the Article) earns income accruing from the transfer of assets
(hereafter referred to as the income accruing from the transfer of assets in this Article) falling under any of the following subparagraphs,
as the revenue provided for in Article 3 (2) 4 and 5, notwithstanding the provisions of Article 60 (1), a return of tax base may
not be filed. In this case, any income on which no return of tax base is filed shall not be included in the calculation of income
amount of each business year provided for in Article 14:
1.Stocks or equity shares falling under the provisions of Article 94 (1) 3 of the Income Tax Act or stocks and equity shares prescribed
by the Presidential Decree; and
2.Land or buildings (including facilities or structures attached to such buildings).
(2) With respect to any income accruing from the transfer of assets on which no return of tax base is filed in accordance with paragraph
(1), an amount calculated by applying the rates of each subparagraph of Article 104 (1) of the Income Tax Act to the tax base calculated
by applying mutatis mutandis Article 92 of the same Act shall be paid as the corporate tax. In this case, if tax rates weighted under
Article 104 (4) of the Income Tax Act are applied, the provisions of Article 55-2 shall not be applied.
(3) In the application of paragraph (2), the tax base calculated by applying mutatis mutandis the provisions of Article 92 of the
Income Tax Act shall be the amount calculated by deducting necessary expenses from the total income accruing from the transfer of
assets (hereafter referred to as transfer value in this Article) and then deducting the amounts provided for in Articles 95 (2)
and 103 of the Income Tax Act from the deducted amount (hereinafter referred to as transfer marginal profits ).
(4) The provisions of Articles 96, 97, 98 and 100 of the Income Tax Act shall apply mutatis mutandis to the calculation of the transfer
value, necessary expenses and transfer marginal profits under paragraph (3): Provided, That in case that any non-profit corporation
that has received any property in contribution, which is not included in the taxable value of the inheritance tax or the taxable
value of the gift tax under the Inheritance Tax and Gift Tax Act transfers any assets prescribed by the Presidential Decree, the
acquisition value of the relevant assets by the contributor thereof shall be the acquisition value of the relevant corporation and
in the case of an organization treated as a corporation under Article 13 (2) of the Framework Act on National Taxes, the first acquisition
value prior to obtaining approval therefor in accordance with the same paragraph shall be deemed the acquisition value.
(5) The provisions of Articles 101 and 102 of the Income Tax Act shall apply mutatis mutandis to the calculation of a tax base on
the income accruing from the transfer of assets, and the provisions of Article 93 of the same Act shall apply mutatis mutandis to
the calculation of a tax amount on the income accruing from the transfe