Small Business Tax in South Korea Confirm the cited source.

South Korea taxes small businesses through two main frameworks depending on legal form. Corporations pay corporate income tax (CIT) under the Corporate Tax Act (Beob-in-se-beob). Sole proprietors pay global income tax (Jonghap-sodeuktax) on business profit alongside all other income. Both frameworks are administered by the National Tax Service (NTS, Kuk-se-cheong), and both attract a 10% local income surtax on top of the national rate. For most practical purposes, the combined headline rates shown in this article already reflect the national-only figures; add 10% of whatever national tax is owed to arrive at the full liability.

The South Korea country overview provides geographic and economic context for businesses operating in Korea.

01What are the corporate income tax rates for small businesses?

Korea's corporate income tax applies a progressive four-band structure. For fiscal years that began before January 1, 2026, the rates are: 9% on the first KRW 200 million of taxable income; 19% on amounts between KRW 200 million and KRW 20 billion; 21% on amounts between KRW 20 billion and KRW 300 billion; and 24% on amounts above KRW 300 billion. Most small businesses fall entirely within the first band at 9% (combined with local income surtax: 9.9%). For fiscal years beginning on or after January 1, 2026 -- following National Assembly passage on December 2, 2025 -- each band increases by one percentage point: 10%, 20%, 22%, and 25% respectively. PwC's South Korea corporate tax summary confirms the 2026 rates represent a reversal of the 2023 one-point reduction and restore the pre-2023 structure. The combined rate including local income tax becomes 11% at the bottom band for qualifying businesses.

The local income surtax is collected separately by city or provincial authorities and equals exactly 10% of national CIT owed -- not 10% of the taxable base. An SME earning KRW 150 million in a calendar-year FY2026 fiscal year owes KRW 15 million in national CIT (150m x 10%) and KRW 1.5 million in local income tax, for a total of KRW 16.5 million.

02How are sole proprietors taxed?

Sole proprietors (sa-eob-ja) do not pay corporate income tax. Business profit flows into the owner's individual global income tax return alongside employment income, rental income, and other sources. The Individual Income Tax Act imposes eight progressive brackets ranging from 6% on income up to KRW 14 million to 45% on income above KRW 1 billion. A 10% local income surtax applies to individual income tax as well. PwC's South Korea individual tax summary confirms the highest combined rate reaches 49.5%. Most small sole proprietors earning business profit under KRW 50 million sit in the 15% or 24% bracket (combined with local surtax: 16.5% or 26.4%).

Bookkeeping obligations differ by scale. All corporations must keep full double-entry accounts. For sole proprietors, the Income Tax Act allows simplified bookkeeping (gan-pyeon-jang-bu) for smaller businesses and requires double-entry accounts above a revenue threshold that varies by industry. Sole proprietors who lack qualifying records may use the NTS standard expense rate (gi-jun-gyeong-bi-yul), a deemed-expense deduction applied to gross revenue, though this is generally less favorable than actual-cost deductions. Business income must be reported annually on the Jonghap-sodeuk-se return filed May 1-31 for the prior calendar year.

03What is the VAT simplified taxpayer regime?

Korea's standard value-added tax rate is 10%, administered under the Value-Added Tax Act. VAT-registered businesses file returns and pay tax quarterly (general taxpayers) or twice yearly (simplified taxpayers). Below KRW 48 million in annual supply value, individual businesses are VAT-exempt and do not issue tax invoices. Between KRW 48 million and KRW 104 million, a business may qualify for the simplified taxpayer regime (gan-i-gwa-se), which applies industry-specific flat rates (typically 1.5-4% of supply value) far below the standard 10%, with no input VAT credit mechanism. The KRW 104 million simplified threshold took effect July 1, 2024 (raised from KRW 80 million under a 2024 reform). Businesses above KRW 104 million in prior-year supply value are general VAT taxpayers and must charge, collect, and remit 10% VAT with full input credit entitlement. Real estate rental businesses and taxable entertainment venues remain subject to the lower KRW 48 million threshold for simplified regime eligibility even after the 2024 reform. From July 2024, businesses with prior-year supply value of KRW 80 million or more must issue electronic tax invoices (e-se-geum-gye-san-seo) regardless of whether they are general or simplified taxpayers.

04What SME special tax reduction is available?

The Restriction of Special Taxation Act (Jo-se-teug-rye-je-han-beob, commonly called the RSTA) provides a special corporate income tax reduction for qualifying small and medium enterprises engaged in eligible businesses. The reduction ratio ranges from 5% to 30% of national CIT owed, depending on the SME's location, size, and business type, with an annual cap of KRW 100 million. The cap decreases by KRW 5 million for each unit reduction in regular headcount versus the prior year. Non-metropolitan-area businesses generally qualify for higher reduction rates than metropolitan-area businesses. Eligible sectors include manufacturing, mining, information technology, restaurants, audio-video production, telecommunications, computer programming, and certain service industries. This incentive was extended through December 31, 2028 by the National Assembly's December 2025 legislation. Separately, newly established start-up SMEs outside designated metropolitan overpopulation control zones can claim a 50-100% CIT reduction for their first five years if established by December 31, 2027. From January 1, 2026, qualifying start-up SMEs established in metropolitan areas (excluding overpopulation control zones) may access a reduced 25% incentive rate rather than zero.

05What is the corporate interim prepayment obligation?

Corporations must file an interim corporate tax return and make a prepayment within two months of the end of the first six months of their fiscal year. For calendar-year entities, this means filing and paying by August 31 each year. The interim payment is typically calculated at approximately 50% of the prior year's final corporate tax liability, providing a mechanism to spread the annual tax burden. The final annual CIT return is due within three months of fiscal year-end (March 31 for calendar-year entities). Local income tax returns are due to the relevant city or provincial government approximately one month after the national filing deadline. Failure to make the interim prepayment or late filing attracts penalties under the National Tax Basic Act.

All CIT filings are submitted electronically via the NTS Hometax (hom-teak-seu) system. Sole proprietors file global income tax returns via the same platform. Both corporate and individual taxpayers should retain accounting records, tax invoices, and supporting documents for at least five years from the close of the relevant tax year.

Given the complexity of qualifying for RSTA SME reductions, determining simplified versus double-entry bookkeeping obligations, and structuring interim prepayments correctly, Korean small-business owners are strongly encouraged to engage a qualified tax professional -- particularly a registered Korean Certified Tax Accountant (Se-mu-sa) -- before making filing or structuring decisions.