South Korea's Tax System and Structure in 2025

South Korea’s taxation framework is divided into two main categories: national taxes and local taxes. As of 2025, there are 14 types of national taxes, including Corporate Income Tax, Individual Income Tax, Inheritance Tax, Gift Tax, Comprehensive Real Estate Holding Tax, Value-Added Tax (VAT), Special Excise Tax, Liquor Tax, Stamp Tax, Securities Transaction Tax, Transportation-Energy-Environment Tax, Rural Special Tax, Education Tax, and Customs Duties. Local taxes consist of 11 different levies categorized under provincial (do), city/county (si/gun), metropolitan city, and autonomous district taxes.

National Tax Service (NTS)

For updated information on tax regulations, filing procedures, and digital services, visit the official website of South Korea’s National Tax Service. The platform offers multilingual support and e-filing tools to assist both domestic and international taxpayers.

Key Taxes and Rates in South Korea

Corporate Income Tax

Companies operating in South Korea are classified as either domestic or foreign corporations. Domestic entities are taxed on their worldwide income, while foreign companies are only liable for tax on income sourced within South Korea. The standard corporate tax rate remains progressive, with a top marginal rate of 25% for large enterprises. Small and medium-sized enterprises (SMEs) benefit from reduced rates—down to 15% for annual profits under KRW 200 million—encouraging startup growth and innovation.

Individual Income Tax

Personal income taxation follows a progressive scale ranging from 6% to 45%, depending on income brackets. It covers three primary components: comprehensive income (wages, business earnings), retirement income, and capital gains from asset transfers such as real estate or stocks. Notably, capital gains on property exceeding certain thresholds are subject to additional surcharges in high-demand housing markets like Seoul and Incheon.

Value-Added Tax (VAT)

The standard VAT rate in South Korea is 10%. General taxpayers calculate their liability using the credit method: (output tax – input tax) × 10%. Simplified taxpayers—typically small businesses with annual revenue below KRW 800 million—use a deemed value-added approach based on sector-specific markup rates multiplied by sales, minus allowable deductions. This system reduces compliance burdens for SMEs while maintaining revenue integrity.

Special Excise Tax

This tax applies to luxury goods, environmentally harmful products, and entertainment services at designated venues such as casinos and nightclubs. Items like tobacco, alcohol, luxury vehicles, and high-emission appliances are subject to tiered excise rates. Additionally, an Education Tax equal to 30% of the special consumption tax amount is imposed to fund public education initiatives, reinforcing social equity through fiscal policy.

Special Economic Zones and Investment Incentives

Economic Zone Regulations

To attract foreign investment and stimulate regional development, South Korea has established several types of special economic zones: Foreign Investment Zones (FIZ), Free Trade Zones (FTZ), Free Economic Zones (FEZ), and National Strategic Industry Clusters. These areas offer streamlined administrative processes, infrastructure advantages, and significant tax incentives.

Free Economic Zones (FEZ)

Governed by the Act on the Designation and Operation of Free Economic Zones, FEZs are designated every five years by the Minister of Trade, Industry and Energy. These zones—including Incheon, Busan-Jinhae, and Yeosu-Gwangyang—are designed to create globally competitive hubs for logistics, manufacturing, finance, and R&D. Benefits include up to 10-year corporate tax exemptions, reduced local taxes, and expedited visa processing for expatriate employees. Companies relocating headquarters or establishing regional centers here gain access to world-class ports, airports, and smart city ecosystems.

New Songdo International Business District

A flagship project within the Incheon FEZ, Songdo is one of Asia’s most advanced smart cities. Developed on reclaimed land, it hosts multinational firms, global schools, and green-certified buildings. Investors enjoy relaxed zoning laws, full foreign ownership rights, and connectivity to major Asian markets via Incheon International Airport.

New Mangum Development Area

The Saemangeum Reclamation Project is a large-scale national initiative transforming coastal wetlands into industrial and agricultural zones. It serves as the Korean-side partner zone for the China-Korea Industrial Park collaboration. Managed by the Saemangeum Development Authority, this area offers long-term land leases, tax breaks for green energy and agritech ventures, and priority access to government subsidies. Recent expansions focus on renewable energy parks and semiconductor supply chain facilities.

Free Trade Zones (FTZ)

Operating outside the scope of standard customs regulations, FTZs cater to export-oriented manufacturers, logistics providers, and wholesale import-export businesses. Key benefits include duty-free imports of raw materials and equipment, simplified customs clearance, and preferential lease terms for factories and warehouses. Major FTZs are located near Busan Port, Incheon Airport, and Pyeongtaek-Dangjin Port, forming critical nodes in global supply chains.

National Strategic Industry Clusters

Under the Special Act on the Development of Advanced Strategic Industries, the government has designated specialized clusters for semiconductors, batteries, AI, biotech, and aerospace. These zones receive prioritized R&D funding, faster environmental reviews, relaxed floor-area ratio restrictions, and workforce training grants. For example, the Cheongju Semiconductor Cluster offers tax credits of up to 30% on qualifying investments, accelerating South Korea’s leadership in next-generation technologies.

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This article draws insights from official sources including the Ministry of Economy and Finance and the Korea Customs Service, supplemented with current policy updates as of 2025.