Domestic corporations are subject to corporate tax on their worldwide income. Dividend income is subject to tax as ordinary income. However, a portion of dividends received by a resident company from another resident company is eligible for the ‘Dividend Received Deduction’ (see Sec. 10.1.).

The accrual basis of accounting is used for calculating the tax base. However, adjustments to the book income is required to derive the taxable income. Taxpayers may elect to recognize unrealized foreign exchange gains and losses for tax purposes. However, once elected, the method of accounting must be followed consistently.

Taxable income is defined as assessable income less allowable deductions. Assessable income is gross income adjusted to include receipts deemed as income by the Corporate Income Tax Law and non-deductible items, and to remove tax-exempt items.

Investments Through Foreign Pass-Through Entities

Effective 1 January 2023, if a Korean investor makes an investment in a foreign jurisdiction through a foreign entity that is treated as a pass-through (fiscally transparent) entity in the foreign jurisdiction for tax purposes, then such foreign entity is also treated as a pass-through entity for Korean tax purposes.

The income of the foreign pass-through entity is taxed at the level of the Korean investor. The characterization of income in the hands of the investor is the same as its characterization in the hands of the pass-through entity. The income is deemed to be taxable in the hands of the investor when it is attributed to the foreign pass-through entity.

An entity is considered a foreign pass-through entity if it meets all the following conditions:

It is a foreign corporation, an overseas investment vehicle, or a non-corporate entity established in a foreign jurisdiction like partnerships; and
The profits or losses of the entity flow through to its investors and are taxable at the level of the investors rather than at the entity level.

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