Tax Accounting — Tax Base and Tax: Loss Carryforwards, Rates, the Minimum Tax and Tax Payable

The tax adjustments of chapter 1 through chapter 6 gave us income for the business year. This chapter starts there and calculates the corporate tax actually due, following the order of the corporate tax base and tax adjustment statement.

1. The tax base

Tax base

\text{Tax base} = \text{Income for the business year} - \text{Loss carryforwards} - \text{Non-taxable income} - \text{Income deductions}

The three items are subtracted in this order. Non-taxable income and income deductions cannot be carried to the next year, so loss carryforwards are deducted first.

Loss carryforwards are tax losses of past business years not yet deducted.

Losses arising in business years beginning on or after 1 January 2020 are carried forward for 15 years (10 years for earlier losses).
The deduction limit is 80% of income for the business year for ordinary corporations, and 100% for SMEs and corporations carrying out a rehabilitation plan, among others.
Older losses are deducted first. An SME may also elect a carryback, obtaining a refund of the previous year’s corporate tax in the year the loss arises.

2. Calculated tax

Corporate tax rates (business years beginning on or after 1 January 2026)
Tax base	Rate	Progressive deduction
Up to ₩200 million	10%	—
Over ₩200 million up to ₩20 billion	20%	₩20 million
Over ₩20 billion up to ₩300 billion	22%	₩420 million
Over ₩300 billion	25%	₩9.42 billion

The 2025 tax reform raised each bracket by 1 percentage point from the 9%, 19%, 21% and 24% structure of 2023–2025. If the business year is shorter than one year, the tax base is annualised to 12 months, the rates applied, and the result scaled back by the number of months. Local corporate income tax is levied separately on the tax base at rates of 1% to 2.5%.

3. Tax credits, reductions and the minimum tax

Tax reductions under the Restriction of Special Taxation Act (such as the start-up SME reduction) and tax credits (such as the integrated investment tax credit and the R&D and human resource development credit) are subtracted from the calculated tax. So that credits and reductions do not cut tax too far, the minimum tax sets a floor.

Minimum tax

\text{Tax after reductions} \ge \text{Tax base before reductions} \times \text{Minimum tax rate}

The minimum tax rate is 7% for SMEs; for other companies it is 10% on the part of the pre-reduction tax base up to ₩10 billion, 12% on the part over ₩10 billion up to ₩100 billion, and 17% on the part over ₩100 billion. If tax after reductions falls below this, credits and reductions are excluded by the difference.

The foreign tax credit, the disaster loss credit and SMEs’ R&D and human resource development credit, among others, are not subject to the minimum tax and are subtracted after it is computed. Credits denied because of the minimum tax can be carried forward for 10 years.

4. Worked example

TO (an ordinary corporation with a 12-month business year) has income for the business year of ₩3 billion. It has a ₩500 million loss carryforward from 2021 and no non-taxable income or income deductions. Its integrated investment tax credit, which is subject to the minimum tax, is ₩300 million. It has already paid ₩120 million of interim prepayment and ₩10 million of tax withheld on interest income.

TO's corporate tax (unit: ₩10,000)
Step	Calculation	Amount
Income for the business year		300,000
Loss carryforward deduction	Within limit 300,000 × 80% = 240,000	−50,000
Tax base		250,000
Calculated tax	250,000 × 20% − 2,000	48,000
Minimum tax	250,000 × 10%	25,000
Integrated investment credit allowed	48,000 − 25,000 (of 30,000 claimed)	−23,000
Total tax burden		25,000
Tax already paid	Interim 12,000 + withholding 1,000	−13,000
Tax payable		12,000

The ₩70 million of credit not allowed is carried forward to the next business year. Because tax payable exceeds ₩10 million, part of it may be paid in instalments within one month after the due date (two months for SMEs): up to 50% if the amount exceeds ₩20 million, otherwise the part above ₩10 million.

5. Filing and payment

Filing deadline: within 3 months from the last day of the month in which the business year ends (31 March of the following year for December year-ends); four months for corporations subject to diligent filing confirmation.
Interim prepayment: if the business year exceeds six months, pay within two months after six months have passed from the start of the year, based either on the previous year’s calculated tax or on provisional first-half accounts.
Attachments: financial statements, the tax adjustment statement, the statement of adjustments to capital and reserves, and so on. Retained balances carry over to the next year through this statement.

Check your understanding

TP (an SME with a 12-month business year) has income for the business year of ₩500 million and loss carryforwards of ₩600 million. What are the tax base and calculated tax after deducting the loss carryforward, and how much loss carryforward remains?

For an SME the limit is 100% of income for the business year, so the full ₩500 million is deducted: the tax base is ₩0 and the calculated tax is ₩0. The remaining ₩100 million of loss carries over to the next business year within the deduction period. An ordinary corporation in the same position could deduct only ₩400 million, leaving a tax base of ₩100 million and calculated tax of ₩100 million × 10% = ₩10 million.

References

Corporate Tax Act, Article 13 (tax base), Article 55 (tax rates), Article 63 (interim prepayment) and Article 64 (payment) — Korea Law Information Center
Restriction of Special Taxation Act, Article 132 (exclusion of reductions for tax below the minimum tax)
National Tax Service, Corporate tax rates