Penalties on withholding taxes

In Korea, withholding tax return is normally required to be filed every 10th of the following month. Also, a yearly report on the payments’ report which were subject to the withholding taxes are required to be filed once a year.

Failure to file and report the withholding taxes will result in following penalties.

Item Calculation Note
원천징수불이행가산세 (납부불성실가산세)

Penalty for failure to timely file withholding tax return

Max [(A+B), 10% of withholding tax payables]

A. 3% of withholding tax payables

B. 0.03% of interest penalties per day

  • 10% of the penalties will be levied as resident surtax
  • Penalty base is the unpaid withholding tax amount
지급조서미제출가산세

Penalty for non-submission of yearly payment report

Non-reported gross payment amount x 1%

 

  • Penalty rate reduced from 2% -> 1% from FY2018
  • 50% deduction applies when the amended withholding tax return filed within three (3) months from the original filing due

written by USCPA in Seoul Song I Yoon (siyoon@theclacc.com)

Penalties on false tax invoice

From 2018, under the amended Value-added Tax law, the penalties on false tax invoice increased from 2% to 3%. Please be aware that the penalties are imposed to both supplier and the buyer.

  • Case 1 – False tax invoice issued without a real/actual transaction.

Penalty calculation : Amount stated in the tax invoice x 3%

  • Case 2 – Amount excessively stated in the false tax invoice.

Penalty calculation : Excessively stated amount x 3%

 

written by USCPA in Seoul Song I Yoon (siyoon@theclacc.com)

Hiring people in Korea

If you had thoughts of hiring people in Korea, consider below two major contract types :

Employment contract vs. Independent service contract

  1. Employment contract (고용관계)
  • Company needs to enroll for the social securities for each employee

Employer portion of social taxes: approx. 8.75%

Employee portion of social taxes: approx.. 8.5%

  • Company needs to provide paid leaves, at least fifteen (15) days per year
  • Company needs to withhold salary income tax (payroll tax) and social taxes for each salary payment
  • Company needs to make severance payment for any employee whose service period is more than a year : approx. one (1) month’s value for one (1) year of service
  • Employees cannot work for more than fifty two (52) hours per week

 

2. Independent service contract (business income) (비고용관계)

  • Called as independent contractor, freelancer, etc. (사업소득자, 프리랜서, 외주용역 등등)
  • Withholding tax rate is fixed – 3.3% in total for each payment
  • Each individual is required to file global income tax return for the previous year’s business income earning

 

2018 세법개정안

매년 7-8월에는 기획재정부에서 세법개정안을 발표하고, 그 내용이 연말 국회를 통과할 시에 적용되고 있습니다.

기획재정부에서는 올해 8월 2일 2018년도 세법개정안을 발표하였습니다.

아래 링크를 통해 세법개정안 보도자료를 참고하시기 바랍니다.

2018 Tax Reform Proposals

Changes in the external audit requirements

Under the current Act and its Enforcement Decree, the mandatory (external) audit requirements apply to the below companies in Korea:

  • Listed in Korea; or
  • Total asset exceeds KRW 12 billion; or
  • Total asset and liability exceed KRW 7 billion; or
  • The number of employees is over 300 and total asset exceeds KRW 7 billion

It’s been controversial that the above criteria are too loose for certain business in Korea. For example, limited liability companies (LLCs) with huge revenue were not required for external audit in Korea.

On April 19, 2018, the Financial Services Commission (FSC) announced and proposed amendments to the Enforcement Decree of the Act on External Audit of Stock Companies that will provide for enhanced independent external audit regime.

The amended Act brings a revenue threshold (KRW 10 billion) to the existing criteria. Also, in additional to listed companies and prospective listed companies, other companies will be subject to external audit unless they are small-sized companies. 

The amended Act becomes effective on November 1, 2018. It is advisable the companies to review this Act and be prepared for external audit, if necessary.

If you have questions on this article, please contact at itos@theclacc.com

 

If you are looking for the accounting firm in Korea,

We, THECL Accounting Corporation ITOS (International Tax and Outsourcing Services) team, will be the right choice for your Korean business.

Our team provides supporting services to companies’ important functions such as finance, accounting, treasury, tax, HR, and administration. We are focused on effectively servicing clients for different phases of their business, from setup to the exit.

Our services include

  • Business set up  in Korea (Incorporation, branch, liaison office)
  • Bookkeeping (Preparation of financial Statements)
  • Tax filings (VAT, corporate income tax, individual income tax, etc.)
  • HR (Payroll, Korean social insurances, retirement tax calculation, etc.)
  • Audit (External, voluntary)
  • Tax audit defense
  • Cash management, etc.

Tel: 02-535-6768

Email: itos@theclacc.com