Korea's Corporate Tax Rate Ranks 10th Among 37 OECD Countries... "Increased Tax Burden on Companies"

South Korea and Portugal Have the Most Tax Brackets with Four Steps

[Asia Economy Reporter Dongwoo Lee] There is an urgent call for tax reform, including a reduction in the corporate tax rate, to strengthen the international competitiveness of Korean companies and enhance Korea's investment attractiveness.

The Korea Economic Research Institute announced on the 2nd that, according to a survey of 37 OECD countries, 21 countries including the United States, the United Kingdom, Japan, and France lowered their corporate tax rates in 2020 compared to 2010. Only eight countries, including Korea, Germany, Turkey, and Chile, raised their corporate tax rates. During the same period, the average corporate tax rate among the 37 OECD countries decreased from 25.4% in 2010 to 23.5% this year. The G7 average also dropped from 33.1% to 27.2% over the same period.

Most major countries have unified their corporate tax brackets. In the case of the United States, the number of tax brackets was drastically reduced from eight to one in 2018, and currently, 33 out of the 37 OECD countries have a single corporate tax rate structure. In contrast, the Netherlands and France have two brackets, while Korea and Portugal have four brackets, the most among the countries surveyed.

The reason advanced countries unify tax brackets is that, due to the nature of corporate tax, although companies pay the tax, the actual tax burden is passed on to consumers, workers, and shareholders. Since the size of the corporation does not reflect the income status of the shareholders who invested in the company, the effect of income redistribution is difficult to expect.

Korea introduced a new tax bracket for taxable income exceeding 300 billion KRW in 2018, raising the top tax rate by 3 percentage points. As a result, the number of tax brackets increased from two in 2012 to three in 2013, and then to four after 2018, with the top tax rate rising from 24.2% to 27.5%. Among the 37 OECD countries this year, Korea's corporate tax rate ranks in the top 10, rising 13 places compared to 2010. In contrast, during the same period, the United States dropped from 2nd to 12th, the United Kingdom from 14th to 31st, and Japan from 1st to 7th.

Last year, Korea's national tax revenue amounted to 293.5 trillion KRW, with corporate tax accounting for 72.2 trillion KRW, the second largest share at 24.6% after income tax. Corporate tax revenue has been increasing annually.

Analysis of last year's national tax statistics by the Korea Economic Research Institute showed that the corporate tax burden of about 60 companies with taxable income exceeding 500 billion KRW increased by 5.7 trillion KRW from 25 trillion KRW in 2017 to 30.7 trillion KRW in 2018.

Corporate tax is structured by determining the taxable income through tax adjustments on net income, multiplying it by the tax rate to calculate the preliminary tax amount, and then applying various deductions and exemptions to determine the total tax burden. The Korea Economic Research Institute noted that the net income of the approximately 60 companies with taxable income exceeding 500 billion KRW increased by only 30 billion KRW from 2017 to 2018, and taxable income remained largely unchanged at 135.2 trillion KRW and 135.8 trillion KRW, respectively.

On the other hand, the increase of 5.7 trillion KRW in tax burden was attributed to the rise in corporate tax rates and the reduction of various deductions and exemptions. In 2018, along with the corporate tax rate increase, the R&D tax credit rate for large corporations was reduced from 1-3% to 0-2%, and the tax credit rates for productivity improvement and safety facility investments were cut from 3% to 1%.

This year, the government estimated that corporate tax burdens would decrease by 550 billion KRW due to tax law revisions such as the integrated investment tax credit, which is only about one-tenth of the increase in tax burden caused by the rate hike.

Choo Kwang-ho, head of the Economic Policy Office at the Korea Economic Research Institute, said, “To strengthen the international competitiveness of our companies and attract foreign direct investment (FDI) by enhancing Korea's investment attractiveness, it is necessary to maintain a corporate tax rate lower than the OECD average,” adding, “Corporate tax rate improvements such as rate reductions and bracket simplifications in line with global trends should be implemented promptly.”

This content was produced with the assistance of AI translation services.