The corporation tax is assessed on the following income:
(1) Income during each business year, including income from the transfer of real estate
(2) Liquidation income (non-profit domestic and foreign corporations are exempted)
b. Non-taxable Income
Corporation tax is not levied on income derived from property of public welfare trusts; it does not matter whether the application for non-taxation is submitted or not.
4. Tax Base
a. Income during Each Business Year
The income of a domestic corporation during each business year is the amount remaining after deducting the gross amount of losses from the gross amount of gains in the same business year.
b. Calculation of Tax Base
(1) The basis for corporation tax on the income of a domestic corporation for each business year shall be the income for each business year remaining after the successive deductions of the following items:
(a) Amount of deficits carried forward from the previous 10 years (5 years in the case of deficits carried forward from the business years beginning before Jan. 1, 2009) which were not previously deducted
(b) Non-taxable income in accordance with the Corporation Tax Law and other relevant laws
(c) Deductible income in accordance with the Corporation Tax Law and other related laws
(2) However, the deductible amount specified in Paragraph (1) shall not exceed the amount of income for each business year. In the case of a corporation in deficit, the said amount of deduction shall not apply.
(3) Provisions concerning the calculation of taxable amount of income for the purpose of corporation tax shall be applicable in accordance with the actual details of the transactions.
c. Business Year for Gains and Losses
A business year for gains and losses of a domestic corporation is the business year in which closing of accounts of the said gains and losses takes place. Specific dates are shown below:
(1) Sale of merchandise or products: The date of delivery of said merchandise or products
(2) Transfer of other assets: The date of receiving consideration, or the earliest date among registration, delivery, or utilization of the assets
(3) Sale of assets through consignment: The date of sale by the consignee (4) Sale or transfer of assets on a long-term installment payment basis: The
amount collectible according to the terms of the payment for the business year and the expenses attributable thereto
(5) Long-term contract concerning construction or manufacturing for one or more business years: The completion percentage of the construction or manufacturing of the items
(6) Interest, insurance premiums, or installment payments receivable by banking institutes, insurance companies, securities companies, mutual saving and finance companies: the date that the said gains have actually been received (7) Losses or gains of revaluation of foreign currency credits and liabilities due to a change in exchange rates: Include or deduct from gross income for the corresponding business year the gains or losses on the translation of foreign currency receivables or payables
(8) Deemed dividends and distribution:
(a) In the case of effacement of stocks, decrease of capital: the date of decision of effacement, or decision thereof by a general stockholders meeting, etc.
(b) In the case of transfer of surplus and reserves into capital except for capital reserve and assets revaluation reserve into capital: the date of decision of transfer thereof by the general stockholders meeting, etc. (c) In the case of dissolution of a corporation: The date of final
determination of the residual value of assets
(d) In the case of merger or consolidation: The date of registration of the merger or consolidation
(e) In the case of corporate division: The date of the registration of the division
5. Gains a. Gains
Gains denote income and profit from transactions that increase the net value of the assets of a corporation except for paid-in capital and other related activities as prescribed in the Corporation Tax Law.
(1) Income from profit-making businesses excluding sales returns and discounts
(2) Gains from asset (including treasury stocks) transactions (3) Receipts from asset leasing
(4) Dividends or distributions receivable
(a) An amount, in excess of the amount necessary to acquire stocks or investment receivable by investors as a result of effacement of stocks, decrease of capital
(b) The value of stocks or investment acquired by transferring surplus or reserves into capital with the following exceptions:
i) Transferring paid-in capital over par into capital
ii)Transferring surplus from consolidation or merger into capital
iii)Transferring gains on retirement of treasury stock (the market value of treasury stock shall not exceed the price paid to acquire the treasury stock) into capital two years after the retirement
iv)Transferring asset revaluation reserve into capital
(c) An amount exceeding the price paid to acquire stocks or investment receivable by investors through the distribution of residual property caused by the dissolution of a corporation
(d) An amount exceeding the price paid to acquire stocks or investment of the extinguished corporation due to a merger or consolidation with a newly established or existing corporation
(e) An amount exceeding the price paid to acquire stocks or investment of the divided corporation due to the division of corporation
(5) Gains from revaluation of assets;(6) Value of assets receivable without compensation, excluding any portion used to cover carried-over losses
(7) Decreased amount of liabilities by exemption or lapse of debts, excluding the portion used to make up for carried-over losses
(9) An amount of reserves set aside with losses and not by means of appropriating profit
(10) Gains received from related parties as a result of an unreasonable practice of capital transaction
(11) An amount of tax-free reserves in excess of the prescribed limit under the law (12) An amount of non-designated donations and designated donations in
excess of the prescribed limit under the law
(13) An amount of entertainment expenses in excess of the prescribed limit under the law
(14) Other income which has been, or is to be vested in the corporation
b. Non-Inclusion of Gains
Gains enumerated below are not counted as gains for the respective business year in the calculation of income:
(1) An amount in excess of the face value of stocks issued (2) Profits from capital reduction
(3) Profits from mergers, excluding those from revaluated gains from mergers prescribed by the relevant Presidential Decree
(4) Profits from division, excluding revaluated gains from corporate division prescribed by the relevant Presidential Decree
(5) In the case where a company (Company A) creates another company (Company B) and becomes a wholly owned subsidiary of Company B by transferring all of its shares to Company B, any gains from such share transfer
(6) In the case where one company (Company A) becomes a wholly owned subsidiary of the other company (Company B) based on a contract under which total shares held by shareholders of Company A are transferred to Company B and the shareholders are granted Company A’s shares, any gains from such share exchange
(7) Profits carried over
(8) Gains from revaluation of assets. Provided, that gains from revaluation of fixed assets under the law (limited to increase amount), inventory assets,
securities, foreign assets held by financial institutions, debts and currency forward and swap are excluded.
(9) An amount of corporation tax or inhabitant tax refundable used for the payment of other tax liabilities
(10) Interest on the refund of erroneously paid national taxes or local taxes; (11) The value of assets received without compensation and an amount of
liabilities decreased due to exemption or lapse of debts, used for balancing deficits carried-over
(12) The output tax amount under the Value Added Tax Law