Corporate tax
Corporate tax (법인세), or corporate income tax, is the tax imposed on the profits earned by a corporation. In accounting terms, it is a charge levied on a firm's taxable income, which represents the earnings remaining after deducting all allowable expenses from total sales. Different countries have different corporate tax systems. The Republic of Korea has a graduated tax system, in which corporations with higher profits pay corporate tax at higher rates. On the other hand, the United States of America applies a flat 21% rate under the 2017 Tax Cuts and Jobs Act, enacted during the first Trump Administration. This means that all corporate income is taxed at the same rate regardless of its level.
Tax Rates
The marginal tax rate is the rate applied to the next dollar of income. On the other hand, the average tax rate is calculated as total taxes divided by total taxable income. For example, suppose a corporation in Korea has a taxable income of 30 billion KRW. Its corporate tax is calculated as follows:
| Taxable Income | Corporate Tax |
|---|---|
| Example | Example Example |
| Example | Example Example |
- Average Tax Rate = Taxable IncomeTotal / Corporate Tax = %
For example, a Korean corporation with a taxable income of 30 billion KRW would be taxed as this:
- For the first 200 million KRW, 9 %.
- From 200 million to 20 billion KRW, increases to 19 %.
- For income between 20 billion and 300 billion KRW, 21 % .
Calculating under this system, the total corporate tax amounts to 5.88 billion KRW, giving an average tax rate of approximately 19.6 %