The National Tax Service of South Korea (NTS) has released a blog post providing crucial information for corporate bodies about the annual tax reporting and payment procedures. The NTS aims to improve transparency and fairness in the declaration for the small-scale companies and corporations that apply the consolidated tax payment system or are subject to verification of earnest reporting.
Key Facts About the Earnest Report Verification System
The earnest report confirms the eligibility system, a protocol specifically targeting smaller corporations, and is central to promoting tax base transparency and the principle of taxation equity. It requires that the tax agent verify the appropriateness of the report contents during corporate tax reporting and deliver the earnest report verification form.
Eligibility Conditions for the Earnest Report Verification System
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Small-scale companies and corporations whose primary business involves real estate rentals. These entities must meet these obligations:
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The controlling shareholders and the related parties must jointly hold more than 50% of the total shareholdings.
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The real estate business, rental income, dividend income, interest income, and the total amount of real estate (right) rental income during the relevant business year should constitute at least 50% of the total sales.
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Companies and corporations must have less than five regular employees during the corresponding business year.
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Domestic corporations that have converted from small business owners subject to confirmation of earnest reporting through in-kind contributions within three years from the end of the business year after the conversion (Applicable to corporations conversion since February 13, 2018).
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Domestic corporations that have acquired the business operation of the domestic corporation converted under the conditions above by in-kind contribution, continuing the operation of the acquired business for up to three years post-conversion.
The report must be submitted within four months from the last day of the month in which the business year ends. Failure to do so results in a surcharge of 5% of the calculated tax amount, or 0.02% of the income amount, whichever is higher.
Understanding the Consolidated Tax Payment System
The consolidated tax payment system comprises one taxation unit for the parent company and its subsidiaries, allowing corporate tax payments based on aggregated income and deficits. This process ensures equivalent tax burdens are maintained, irrespective of the organizational structure.
If approved by the boss of the local tax office where the parent company is situated, they may apply the policy to an eligible corporation. However, approval can be withdrawn or forfeited upon particular situations like failure to apply the consolidated tax payment policy to an eligible corporation, or if tax is due on demand. In such cases, re-application is forbidden for five years.
The parent company bears the corporate tax reporting and payment responsibility within four months from the last day of the month in which the business year ends. The subsidiaries are obligated to pay their tax co-jointly.
Information about the Special Taxation System for Joint Enterprises
Under the Special Taxation System, a joint enterprise is considered the main operator. This scheme does not tax incomes generated from the joint enterprises but attributes them to the operators who are taxed individually.
This applies to partnerships under the Civil Code, partnerships and anonymous partnerships under the Commercial Code, partnership corporations, and legal professional corporations offering professional human services.
Joint enterprises that wish to apply for this scheme need to file a request to the relevant tax office before the start of the first taxable year of application. Following the end of the business year, they need to report the income calculation and distribution details of the joint enterprise within three months from last month’s last day.
In the next session, the NTS will provide assistance services for reporting easily and simply. These programmes aid corporations in complying with the tax regulations by making reporting straightforward and transparent.
Disclaimer : This content is a translation of material originally published in Korean by the National Tax Service of the Republic of Korea. While efforts have been made to ensure accuracy, this translation is provided for informational purposes only and does not carry legal weight. In the event of any discrepancy, the original Korean version shall prevail. Users should consult the official Korean documents for precise interpretation. This translation does not constitute legal advice. The translators and publishers shall not be held liable for any loss arising from reliance on this translation.