[Income Tax in Korea] Penalty Taxes and Late Payments

Penalty Taxes and Late Payments

In this blog post, we will explore penalty taxes and late payment fees related to income tax in Korea. Understanding these penalties is crucial for residents to avoid unnecessary financial burdens.

 

Penalty Tax on Non-filing or Incorrect Filing

If a resident in Korea, who is obligated to file an income tax return, fails to do so within the due date or under-reports their income, they will be subject to penalty taxes. The penalty tax is calculated based on the following criteria:

1. Penalty Taxes on Non-Filing:

20% of the tax amount due to non-filing. For those subject to double-entry bookkeeping, the larger of 'tax amount due to non-filing × 20%' and 'gross revenue × 0.07%' will apply.

2. Under-reporting:

10% of the under-reported tax amount.

3. Non-filing, Under-reporting, or Unlawful Application for Tax Reduction/Exemption:

40% of the tax amount due to non-filing (or under-reported tax) will be imposed. For unlawful acts committed in international trade, the penalty increases to 60%.

For those subject to double-entry bookkeeping, the larger of 'tax amount due to non-filing × 40%' and 'gross revenue × 0.14%' will apply.

 

Penalty Tax on Late Payment of Tax

In case the tax payable is not paid within the due date or is partially unpaid, a penalty tax will be calculated as follows:

• The amount of unpaid or underpaid tax multiplied by the number of days from the next day of the due date of payment through the voluntary payment date, then multiplied by 0.025%.
• Starting from Feb. 15, 2022, a rate of 0.022% will apply for late payment.

Penalty Tax for Insincere Payment of Withholding Tax

If a withholding agent fails to pay the tax withheld or to be withheld within the due date, a penalty tax will be imposed based on the following calculation: 

• (Amount of unpaid or underpaid tax x 3%) + (Amount of unpaid or underpaid tax x 0.025% x number of unpaid days)
  • Ceiling: 10% of the unpaid or underpaid tax amount

Penalty Tax on Incomplete Submission of Statement of Payment

For individuals obligated to submit a statement of payment, failure to do so by the due date or submitting an obscure statement will result in a penalty tax of 1% of the amount paid for which a statement was not submitted. If the statement is submitted within three months of the due date, the penalty tax is reduced to 0.5%.

Penalty Tax on Non-Collection of Supporting Documents or Collection of False Documents

Individuals who fail to collect official supporting documents or collect false supporting documents will face a penalty tax equal to 2% of the amount for which supporting documents are missing or false documents were collected. Certain exceptions apply to newly commenced businesses, businesses with revenue less than 48 million won in the previous year, insurance agents, salespersons with year-end tax settlement on business income, and those who filed a return on income by estimation.

Penalty Tax on Incompliant Keeping and Entering of Books

Business operators who fail to properly keep and enter books or under-record income will be subject to a penalty tax calculated as follows: - Penalty tax = Calculated tax amount × omitted (under-recorded) amount / global income amount × 20%.

Penalty Tax on Non-Reporting and Non-Use of a Business Account

For individuals subject to double-entry bookkeeping, failing to open or use a business account within the due date will result in a penalty tax based on the following criteria:

• Failure to use: Unused amount × 0.2%.
• Failure to report: The larger of (gross revenue of the reported period × 0.2%) or (mandatory usage amount of business account × 0.2%).
  • This penalty also applies when there is no calculated tax amount.

Conclusion

In conclusion, understanding the penalty taxes and late payment fees associated with income tax in Korea is essential for all taxpayers. Make sure to file your taxes correctly and pay on time to avoid unnecessary financial burdens.