Definition
In Korea, corporate tax is the tax a company (a legal entity, recognized by law as a kind of person) pays the government on the net profit it earns in a year. Just as individuals pay income tax on what they earn from work, a corporation also shares part of its earnings as a member of society. The tax applies not to total sales, but only to the net profit left after subtracting costs.
It Is Taxed on Net Profit, Not Sales
Say you open a bakery and sell 100 million won worth of bread in a year. That whole 100 million won is not yours to keep. If you spent 80 million won on flour, store rent, and employee pay, you really earned only 20 million won.
Corporate tax is calculated on the same idea. Start with all the money the company took in (sales). Subtract every cost of making and selling the product. The tax is then figured only on the profit that is really left. Even if sales run to hundreds of billions of won, the tax burden is not large if everything went into building factories and buying raw materials.
What if a company worked hard all year but ended up with a loss and nothing left over? With no profit, the corporate tax on profit that year is 0 won. The loss can even be carried over to the next year to reduce that year's tax.
The More You Earn, the Higher the Rate
Corporate tax does not charge every company the same rate. It would be unfair if a small neighborhood venture and a big corporation earning tens of trillions of won paid at the same rate.
So corporate tax uses a bracket-based progressive rate, where the rate steps up as profit grows. For fiscal years starting on or after January 2026, the part of taxable income up to 200 million won is taxed at 10%, and the part over 300 billion won is taxed at 25%.
But the higher rate applies only to the amount above each bracket, not to all of the profit. Going over a threshold by 1 won does not put the higher rate on all of your earnings at once.
The government also cuts or raises corporate tax depending on the economy. It may give tax credits to encourage research and hiring, which lowers the tax a company really pays.
A Bit More Precisely: Book Profit vs. Tax-Law Profit
The net profit a company records in its accounting books is not exactly the same as the profit the Korean National Tax Service uses to set the tax. Some items count as legitimate costs under accounting standards, but tax law does not accept them as costs.
For example, if a company buys a luxury imported car for the owner's personal use, or overspends on entertainment expenses with no receipts, tax law does not treat these as costs. Adding and subtracting items to bring accounting profit in line with tax law is called tax adjustment.
Economists also argue a lot about who finally bears corporate tax. Even when the company pays it, the burden can spread out. The company may raise prices and pass it on to consumers, or give smaller raises to employees.
So corporate tax looks like it is paid by a corporate shell, but in fact it is shared by everyone in society: shareholders, workers, and consumers.
Common misconceptions
Corporate tax is charged on a company's total sales.
It is charged not on total sales, but only on net profit (income): sales minus necessary costs such as labor, materials, and rent. In a year with a loss, no corporate tax is paid.
If corporate tax goes up, only the shareholders of rich big companies pay more.
If a company raises prices or holds down wage increases to make up for the tax, part of the burden can shift to consumers or employees.
Where you meet it
A company with 5 billion won in annual sales and 4 billion won in costs files and pays corporate tax on the remaining 1 billion won of net profit.
A startup runs a loss in its first year because of heavy research and marketing costs, and reports 0 won in corporate tax for that year.
The government gives corporate tax cuts to companies investing in semiconductors or green energy, to encourage them to build factories.
In one sentence
Corporate tax is a tax on the net profit a company earns in a year after subtracting costs.