Corporate tax on liquidation income

Date: May 12, 2020

I. Tax payer

Profit making domestic business

 

II. Exemption from Corporation tax

① Where a domestic corporation restructures as prescribed in the Commercial Act

 

② Where a corporation established under any special Act restructures to a company as defined in the Commercial Act upon the amendment or repeal of the special Act

 

③ Cases prescribed by Presidential Decree where a domestic corporation restructures under any other Act.

 

II. Tax Base

Liquidation income = residual property value – total equity capital

 

(1)Residual property value

= assets– debts

 

(2)Total equity capital

=Capital + surplus + refunded corporate tax amount – deficit carried forward

 

 

III. Tax Rate

It carries the same tax rate with corporate tax for the pertinent business year

 

 

IV. Tax Filing & Payment

Within three months from the last day of the month in which the date the value of the residual assets

 

* Interim Report

 

Within one month from the last day of the month in which the date prescribed in the applicable subparagraph falls

 

①Where the valueof the residual assets is not determined by the first anniversary of the registration of the dissolution

②Where some residual assets are distributed to stock holders, etc. prior to the determination of the value of the residual assets from dissolution

 

V. Second Tax Liability to a liquidator etc.

 

1) Second taxpayer

 

① Liquidator

② Those distributed and delive redresidual assets

 

2) Qualifications

 

Unpaid national tax & distribution of residual assets & charging shortage

 

 

3) Limits

 

 

① Liquidator: asset value distributed and delivered

② An individual distributed and delivered: distributed anddelivered asset value

 

VI. Exclusion from Application of Additional Dues to Liquidation Income

Article 21 of the National Tax Collection Act shall not apply to the collection of corporate tax on liquidation income.

 

 

VI. Rules and Regulations

Article 78 (Special Provisions on Taxation on Liquidation Income Accruing from Restructuring of Corporation)

 

Where a domestic corporation falls under any of thefollowing cases, no corporate tax shall be imposed on its liquidation income:

1.  Where adomestic corporation restructures as prescribed in the Commercial Act;

2.  Where a corporation established under any special Act restructures to a company as defined in the Commercial Act upon the amendment or repeal of the special Act;

3.  Cases prescribed by Presidential Decree where a domestic corporation restructures under any other Act.

 

Article 79 (Calculation of Liquidation Income Accruing from Dissolution)

 

(1)  Where a domestic corporation is dissolved (excluding a dissolution by a merger or division), the liquidation income(hereinafter referred to as "liquidation income from dissolution") shall be calculated by deducting the sum of the paid-in capital or investment funds and the surplus funds (hereinafter referred to as "total amount of equity capital") as at the registration date of the dissolution from the value of the residual assets upon dissolution of the corporation.

 

 

(2)  Where a domestic corporation in the process of liquidation due to a dissolution continues to conduct its business pursuant to Article 229, 285, 287-40, 519, or 610 of the Commercial Act after having distributed some residual assets upon dissolution to stockholders, etc., the liquidation income from dissolution of the domestic corporation shall be calculated by deducting the total amount of its equity capital as at the registration date of the dissolution from the total amount of the residual assets distributed during the period between the registration date of the dissolution and the registration date of the continuation.

 

 

(3)  In calculating liquidation income from dissolution of a domestic corporation, the amount of corporate tax to be refunded under the framework Act on National Taxes during the period of liquidation shall be added to the total amount of equity capital of the domestic corporation as at the registration date of the dissolution.

 

 

(4)  Where a domestic corporation has losses carried forward prescribed by Presidential Decree as at the registration date of the dissolution for purposes of calculating the liquidation income from dissolution of the domestic corporation, an amount equivalent to the losses carried forward shall be offset from the total amount of its equity capital as at the registration date of the dissolution: Provided, That the amount of losses carried forward to be offset shall not exceed the amount of surplus funds among the total amount of equity capital, and if the losses carried forward exceed the surplus funds, such excess losses may be deemed nil.

 

 

(5)  Where any surplus funds have been transferred into the paid-in capital or investment funds within two years prior to the registration date of the dissolution in calculating the liquidation income pursuant to paragraph (4), the relevant amount shall be deemed not have been transferred into the paid-in capital or investment funds for purposes of the same paragraph.

 

 

(6)  In calculating the liquidation income from dissolution of a domestic corporation, the income for each business year accrued during the period of liquidation shall be included in the amount of income for each relevant business year of the corporation.

 

Article 84 (FinalReports)

 

(1)  A domestic corporation liable to paycorporate tax on liquidation income shall file a report on the corporate tax base and tax amount on liquidation income with the head of the tax office having jurisdiction over the place of tax payment by the following applicable deadlines, as prescribed by Presidential Decree:

 

 

1.  In cases falling under Article 79 (1): Withint hree months from the last day of the month in which the date the value of the residual assets prescribed by Presidential Decree is determined falls;

 

 

2.  In cases falling under Article 79 (2): Within three months from the last day of the month in which the registration date of continuation falls.

 

 

(2)  A report filed under paragraph (1) shall be accompanied by the following documents:

 

 

1.  In cases falling under paragraph (1) 1 and 2,a statement of financial position of a dissolved corporation as at the determination date of the value of the residual assets or the registration date of continuation;

 

 

2.  Other documents prescribed by Presidential Decree.

 

(3)  Paragraphs (1) and (2) shall apply although the amount of liquidation amount is nil.

 

 

Article 85(Interim Reports)

(1)  Where a domestic corporation (excluding acorporation referred to in each subparagraph of Article 51-2 (1)) falls under any of the following cases, it shall file a report there on with the head of the tax office having jurisdiction over the place of tax payment, as prescribed by Presidential Decree, within one month from the last day of the month in which the date prescribed in the applicable subparagraph falls: Provided, That subparagraph 2 shall not apply where a corporation liquidates according to the liquidation process prescribed in Article 80 of the State Property Act:

 

 

1.  Where some residual assets are distributed to stockholders, etc. prior to the determination of the value of the residual assets from dissolution: The date of the distribution;

 

2.  Where the value of the residual assets is not determined by the first anniversary of the registration of the dissolution: The first anniversary.

 

(2)  A reported filed under paragraph (1) shall be accompanied by the statement of financial position as at the registration date of the dissolution and the date of distribution or as at the first anniversary of the registration date of the dissolution, and other documents prescribed by Presidential Decree.

 

 

Article 90 (Exclusion from Application of Additional Dues to Liquidation Income)

Article 21 of the National Tax Collection Act shall not apply to the collection of corporate tax on liquidation income.

 

 

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