The Denifition of Gross Income and Deductible Expenses
(Corporate Tax in Korea)

1. Tax Base for Corporate Tax

(1)     The corporate TAX BASE on the INCOME of a domestic corporation for each business year shall be calculated by deducting the following amounts and income in the following order, from income earned for each business year.

①   Losses incurred during each business year starting within ten years before the start date of the current business year (within five years when the losses incurred before Dec. 31, 2008) which were not thereafter deducted in the calculation of the tax base.  In such cases, losses shall be limited to the amounts provided in Article 14 (2) of Corporate Tax which are included in the tax base reported under Article 60 or determined or corrected under Article 66 or reported for revision under Article 45 of the Framework Act on National Taxes.

②   Non-taxable income prescribed in the Corporate Tax Act and other Acts

③   Income deductions prescribed in Corporate Tax Act and other Acts.

(2)     The INCOME of a domestic corporation for each business year shall be the amount calculated by deducting the total amount of DEDUCTIBLE EXPENSES incurred during the relevant business year from the total amount of GROSS INCOME accrued during the relevant business year.

2. Scope of GROSS INCOME

(1)     The gross income shall be the amount of earnings generated by transactions which increase the net assets of a corporation, except for capital input or financing and what is provided in the Corporate Tax Act.

(2)     The following amounts shall be deemed gross income:

①  Where securities are purchased from an individual who is a related party provided in Article 52 (1) of Corporate Tax Act at the prices lower than the market prices referred to in Article 52 (2) of Corporate Tax Act, the amount of the difference between such market prices and the relevant purchase prices.

②  An amount equivalent to the amount of foreign corporate tax referred to in Article 57 (4) of Corporate Tax Act (limited to any tax credit granted).;

③  The amount of income distributed under Article 100-18 (1) of the Restriction of Special Taxation Act.

(3)   Matters necessary for the scope and classification of gains under paragraph (1) and other matters shall be prescribed by Presidential Decree.

Any of the amounts provided in Article 16 of Corporate Tax shall be deemed the amount of profit dividends or surpluses distributed from a corporation.

The Non-Inclusion of Gross Income in the Corporate Tax Act includes,

(1)     Non-Inclusion of Proceeds from Capital Transactions in Gross Income (Article 17)

(2)     Non-Inclusion of Evaluation Marginal Profits, etc. in Gross Income (Article 18)

(3)     Non-Inclusion of Holding Company's Received Dividend Amount in Gross Income (Article 18-2)

(4)     Non-Inclusion of Received Dividend Amount in Gross Income (Article 18-3)

(5)     Non-Inclusion in Gross Income of Evaluation Marginal Profits of Inventory Assets of Domestic Corporation that Applies International Accounting Standards (Article 42-2)

3. Scope of DEDUCTIBLE EXPENSES

(1)     Deductible expenses shall be the amount of losses incurred by transactions which reduce the net assets of a corporation, excluding return of capital or financing, disposition of surplus funds, and what is provided in the Corporate Tax Act.

(2)     Deductible expenses referred to in paragraph (1) shall be losses or expenses incurred in connection with the business of a corporation which are generally accepted as ordinary or directly related to profits, except those otherwise expressly prescribed by the Corporate Tax Act and other Acts.

(3)     Losses distributed under Article 100-18 (1) of the Restriction of Special Taxation Act shall be deemed deductible expenses referred to in paragraph (1).

(4)     Matters necessary for the scope and types of deductible expenses referred to in paragraphs (1) through (3) and other matters shall be prescribed by Presidential Decree.

The Inclusion of Deductible Expenses in the Corporate Tax Act includes,

(1)     Inclusion of Reserve Funds for Proper Purpose Businesses in Deductible Expenses (Article 29)

(2)     Inclusion of Liability Reserve Funds, etc. in Deductible Expenses (Article 30))

(3)     Inclusion of Allowance for Severance and Retirement Benefits in Deductible Expenses (Article 33)

(4)     Inclusion of Bad Debt Allowance in Deductible Expenses (Article 34)

(5)     Inclusion of Allocation for Payment of Claims for Compensation in Deductible Expenses (Article 35)

(6)     Inclusion of Value of Assets for Business Acquired by National Treasury Subsidies, etc. in Deductible Expenses (Article 36)

(7)     Inclusion of Value of Fixed Assets Acquired by Construction Changes in Deductible Expenses (Article 37) 

(8)     Inclusion of Value of Fixed Assets Acquired by Insurance Marginal Profits in Deductible Expenses (Article 38)

(9)     Inclusion of Reasonable Amount for Asset Transfer Marginal Profits due to Exchange in Calculation of Deductible Expenses (Article 50)

The Non-Inclusion of Deductible Expenses in the Corporate Tax Act includes,

(1)     Non-Inclusion of Bad Debt Expense in Deductible Expenses (Article 19-2)

(2)     Non-Inclusion of Losses from Capital Transactions, etc. in Deductible Expenses (Article 20)

(3)     Non-Inclusion of Taxes and Public Changes in in Deductible Expenses (Article 21)

(4)     Non-Inclusion of Losses from Evaluation of Assets in Deductible Expenses (Article 20)

(5)     Non-Inclusion of Depreciation Costs in Deductible Expenses (Article 23)  

(6)     Non-Inclusion of Donations in Deductible Expenses (Article 24)

(7)     Non-Inclusion of Entertainment Expenses in Deductible Expenses (Article 25)

(8)     Non-Inclusion of Excessive Expenses in Deductible Expenses (Article 26)

(9)     Non-Inclusion of Non-Business Expenses in Deductible Expenses (Article 27)

(10)  Non-Inclusion of Interest Paid in Deductible Expenses (Article 28)