Korea Tax Accountant cheat sheet

Framework Act on National Taxes priority: national taxes, local taxes, and customs duties are governed by the Framework Act unless otherwise provided; tax liability is determined by law (no taxation without law).

Statute of limitations for national tax assessment: 5 years generally; 10 years for fraud or other unlawful means; 15 years for failure to file a return and nonpayment of tax. The period starts from the day after the statutory due date.

Income tax is classified into comprehensive income (interest, dividends, business, employment, pension, other), retirement income, capital gains, and timber income; each category has its own tax base and rate structure.

Global income tax rates (2024): 6% up to KRW 14 million; 15% to 50 million; 24% to 88 million; 35% to 150 million; 38% to 300 million; 40% to 500 million; 42% to 1 billion; 45% above 1 billion. Progressive brackets with marginal relief.

Employment income deduction: earned income tax credit and standard tax credit (KRW 130,000 per person) apply; employment income deduction is calculated by formula based on total salary, with ceilings.

Capital gains tax: 20% for assets held 2 years or more (15% for unregistered transfers); 10% for small houses; 20% for land and buildings; 30% for unlisted stocks; 25% for listed stocks exceeding threshold. Surcharge for multiple homes.

Year-end tax settlement: withholding agent adjusts tax by January 20 of the following year; employee can claim deductions via simplified or standard deduction; medical, education, insurance, and donation credits apply.

Taxpayer rights: right to pre-assessment explanation, right to request correction, right to appeal within 90 days of receiving notice, right to a hearing, and protection of taxpayer information.

Corporate tax rates (2024): 9% up to KRW 200 million; 19% to 20 billion; 21% to 300 billion; 24% above 300 billion. Plus local income surtax of 10% of corporate tax.

Taxable income = gross income - deductible expenses + non-deductible items - tax credits and losses carried forward. Loss carryforward limited to 15 years; SME carryforward 10 years.

Depreciation: straight-line or declining-balance for tangible assets; useful lives per tax law (e.g., buildings 20-40 years; machinery 4-10 years). Immediate expensing for small assets up to KRW 1 million.

VAT: standard rate 10%; zero-rated exports and certain services; exempt items include basic foodstuffs, medical services, education, and financial services. VAT return filed quarterly (general) or semiannually (simplified).

VAT input tax credit: available for purchases used in taxable supplies; not for exempt supplies or non-business use. Credit must be claimed within the filing period; carryforward of excess input tax not allowed (refund for exporters).

Withholding tax on domestic payments: 25% on interest/dividends to non-residents (reduced by treaty); 20% on business income to non-residents; 20% on other income; 20% on wages (progressive).

Inheritance and gift tax: progressive rates 10%-50%; gift tax credits for prior gifts within 10 years; inheritance tax deduction for spouse and dependents; filing within 6 months of death or gift.

Securities transaction tax: 0.23% on KOSPI transfers (0.08% for KOSDAQ); agricultural special tax 0.15% on securities transactions; stamp duty on contracts.

Local taxes include acquisition tax, registration tax, property tax, automobile tax, resident tax, local income tax, and local consumption tax. Local income tax is 10% of national income tax (corporate and individual).

Acquisition tax rates: 4% for acquisition of housing by individuals (1% for first-time homebuyers under KRW 600 million; 3% for inherited); 2% for land; 2% for buildings; 2% for vehicles. Additional surcharges for heavy acquisition.

Property tax: 0.1%-4% depending on property type and value; comprehensive real estate holding tax (separate) for high-value properties; tax base is officially assessed value.

Resident tax: per capita portion (KRW 10,000 for individuals; KRW 50,000-200,000 for corporations) plus proportional portion (0.25% of income tax for individuals; 1% of corporate tax).

International taxation: worldwide income principle for residents; foreign tax credit available (direct and indirect) with limitation per country or basket; carryforward of excess credit for 5 years.

Transfer pricing: arm's length principle; documentation requirements for cross-border transactions; advance pricing agreements (APA) available; secondary adjustment for excess profits.

Tax treaties: Korea has over 100 treaties; reduced withholding rates for dividends (5-15%), interest (10-15%), royalties (10-15%); tie-breaker rules for dual residence; mutual agreement procedure (MAP).

Controlled foreign corporation (CFC) rules: passive income of foreign subsidiaries in low-tax jurisdictions (effective tax rate below 15%) imputed to Korean parent; exceptions for active business.

Accounting equation: Assets = Liabilities + Equity. Double-entry bookkeeping: every transaction affects at least two accounts, with debits equal credits.

Revenue recognition (K-IFRS 15): five-step model-identify contract, identify performance obligations, determine transaction price, allocate price, recognize revenue when control transfers.

Inventory valuation: lower of cost or net realizable value (K-IFRS 2). Cost formulas: specific identification, FIFO, weighted average. LIFO not permitted under K-IFRS.

Depreciation methods: straight-line, declining balance, units-of-production. Depreciation starts when asset is available for use; residual value reviewed annually.

Cost accounting: product costs include direct materials, direct labor, and manufacturing overhead; period costs expensed. Overhead allocation using predetermined rate = estimated overhead / estimated activity base.

Variance analysis: material price variance = (standard price - actual price) × actual quantity; material quantity variance = (standard quantity - actual quantity) × standard price. Favorable/unfavorable interpretation.

Break-even point: fixed costs / contribution margin per unit; contribution margin ratio = (sales - variable costs) / sales. Margin of safety = (actual sales - break-even sales) / actual sales.

Financial statements: statement of financial position, statement of comprehensive income, statement of changes in equity, statement of cash flows, and notes. Cash flows classified as operating, investing, financing.

Demand and supply: equilibrium price where quantity demanded equals quantity supplied; price ceiling causes shortage; price floor causes surplus. Elasticity = % change in quantity / % change in price.

GDP = C + I + G + (X - M). Nominal vs real GDP; GDP deflator = nominal GDP / real GDP × 100. GNP = GDP + net factor income from abroad.

Inflation: CPI measures price changes of a basket; core inflation excludes food and energy. Phillips curve shows inverse relationship between inflation and unemployment in short run.

Fiscal policy: expansionary (increase government spending, cut taxes) to stimulate economy; contractionary to cool inflation. Multiplier effect = 1 / (1 - MPC).

Monetary policy: central bank controls money supply via open market operations, reserve requirements, discount rate. Money multiplier = 1 / reserve ratio.

International trade: comparative advantage explains gains from trade; tariffs and quotas reduce welfare; balance of payments records current and capital accounts.

Market structures: perfect competition (many firms, homogeneous product), monopoly (single seller), oligopoly (few firms), monopolistic competition (differentiated products).

Business cycles: expansion, peak, contraction, trough. Leading indicators (stock prices, building permits), coincident indicators (industrial production), lagging indicators (unemployment rate).

Commercial Code: commercial transactions are acts performed by merchants in the course of business; merchants must register in the commercial registry. Commercial prescription period is 5 years for claims.

Types of companies: partnership (hapmyeong), limited partnership (hapja), limited liability (yuhan), stock company (jusik), limited liability company (yuhan chaekim). Stock company requires at least one director and a statutory auditor if capital exceeds KRW 1 billion.

Stock company: shares must have par value or no par value; shareholders' liability limited to capital contributions; general meeting of shareholders is the highest decision-making body; board of directors manages affairs.

Commercial liens: seller has right to retain goods until payment; buyer has right to reject non-conforming goods. Commercial agency: agent can bind principal if acting within authority.

Management functions: planning, organizing, leading, controlling. SWOT analysis (strengths, weaknesses, opportunities, threats). Porter's five forces: rivalry, new entrants, substitutes, buyer power, supplier power.

Marketing mix: 4Ps (product, price, place, promotion). Product life cycle: introduction, growth, maturity, decline. Break-even analysis in pricing.

Financial management: capital budgeting (NPV, IRR, payback period), working capital management, capital structure (debt vs equity). WACC = weighted average cost of capital.

Business law: Fair Trade Act prohibits unfair trade practices; Commercial Code governs contracts, sales, and agency. Labor Standards Act sets minimum working conditions.

Double-entry bookkeeping: debit (left) increases assets and expenses; credit (right) increases liabilities, equity, and revenues. Journal entries recorded in chronological order, then posted to ledger.

Trial balance: list of accounts with debit and credit balances; total debits must equal total credits. Used to prepare financial statements and detect errors.

Adjusting entries: accruals (revenues earned but not recorded, expenses incurred but not paid), deferrals (prepaid expenses, unearned revenues), depreciation, and inventory adjustments.

Tax return preparation: income tax return filed by May 31 for previous year; corporate tax return within 3 months of fiscal year end; VAT return by 25th of month following quarter.

Withholding tax return: monthly by 10th of following month for wages, interest, dividends; year-end settlement by January 20. Electronic filing via Hometax.

Tax invoices: must be issued for VAT taxable supplies; electronic tax invoices mandatory for corporations and certain individuals. Penalty for failure to issue: 2% of supply value.

Bookkeeping for VAT: output tax on sales, input tax on purchases; net VAT payable = output tax - input tax. Zero-rated sales: input tax refundable. Exempt sales: input tax not deductible.

Financial statement preparation: income statement (revenues - expenses = net income), balance sheet (assets = liabilities + equity), cash flow statement. Closing entries transfer temporary accounts to retained earnings.