Summary of Tax Penalty in Korea

1. Penalty on Failure to File Returns

If a resident either fails to file a tax return or under-reports income, penalties shall be charged at the following rates:

(1) Failure to file

‒ Calculated Tax × 20%

Note: In case of those subject to double-entry bookkeeping, the larger amount between Calculated Tax × 20% and Gross Revenue × 0.07% is applied.

(2) Under-reporting

‒ Calculated Tax × 10%

(3) Willful failure to file, willful under-reporting or willful tax reduction/exemption

‒ Calculated Tax × 40%

Note: In case of willful failure to file or willful under-reporting by those subject to double-entry bookkeeping, the larger amount between Calculated Tax × 40% and Gross Revenue × 0.14% is applied.

2. Penalty on Non-payment or Underpayment of Tax

When the income tax payable with the final return has not been paid in full, a penalty in the amount of 0.03% of the amount shall be added to the amount of the tax due, for each day the amount remains unpaid.

3. Penalty Tax on Failures to Withhold Tax

If withholding agent fails to withhold tax at source or fails to pay the government tax withheld within the payment period, the sum of (1) and (2) shall be imposes as penalty. (Limited to 10% of unpaid tax)

4. Penalty Tax on Failures to Report Withholding Payment Records  

If withholding agent fails to submit a payment record within the reporting period or if the reported facts concerning payment are found to be unclear, a penalty in the amount of 2% of the payment due shall be charged.

However, a penalty in the amount of 1% of payment due shall be charged, if the withholding agent submits the withholding payment record within 3 months after the due date.

5. Penalty on non-keeping of documentary evidence

2% of the amount equivalent to not receiving regular documentary evidence (tax invoice, invoice, credit card sales slip, cash receipt, etc) or accepting false documentary evidence is applied. New business starters, businesses with revenue of less than 48 million won in the immediate preceding year, insurance agents and salespersons who did the year-end tax adjustment on their income and those with estimated income are excluded from this penalty tax.

6. Penalty Tax on Failures to Maintain Adequate Books and Records

If a business taxpayer fails to maintain proper books and records or under-records income amounts, such taxpayer shall be subject to penalty tax by the calculation below.

New business starters, businesses with revenue of less than 48 million won in the immediate preceding year, insurance agents and salespersons who did the year-end tax adjustment on their income are excluded from this penalty tax.

7. Penalty Tax on Failure to use Business Purpose Bank Account

If taxpayers subject to double bookkeeping regime do not open, declare or use business purpose bank accounts within the due date, penalty taxes should be applied as follows.

•Penalty tax on failure to open/register : the bigger of 0.2% of gross revenue and 0.2% of unused amount

•Penalty Tax on failure to use: unused amount × 0.2%