Corporate Registration License Tax in Korea

When incorporating a company in Korea, the amount of registration license tax payable upon corporate registration can differ by as much as threefold depending on whether the company’s head office is located within an Overconcentration Control Area or outside such an area.

Article 28(2) of the Local Tax Act provides for a threefold increase in registration license tax applicable to the incorporation and capital increases of companies located within Overconcentration Control Areas. The policy is intended to mitigate excessive concentration in the Seoul Metropolitan Area and promote more balanced regional development.

Selecting the location of a company’s head office at the incorporation stage is therefore more than simply a real estate decision concerning where to lease office space. It is a financial decision that can affect the taxes payable from the first day of incorporation, the cost of future capital increases, and potentially the acquisition tax imposed on real estate acquired by the company.

This article explains the registration license tax surcharge applicable to companies established in Overconcentration Control Areas, compares the actual tax burden by capitalization amount and location, and discusses post-incorporation risks and potential tax-planning considerations.

1. What Are Overconcentration Control Areas and Non-Overconcentration Control Areas?

Korea has experienced a continuing concentration of population, universities, large corporations, and economic activity in the Seoul Metropolitan Area, contributing to issues such as traffic congestion, housing shortages, environmental pressures, and regional population decline.

To address these concerns, the government has introduced tax measures—including the threefold registration license tax surcharge for companies established in designated Overconcentration Control Areas—to encourage businesses to establish or relocate operations outside heavily concentrated metropolitan areas.

Overconcentration Control Areas — Triple Taxation Applies

These are areas where excessive concentrations of population and industry are subject to regulatory control.

• Seoul: All areas of Seoul
• Incheon: Most areas, excluding certain Free Economic Zones such as Songdo, Cheongna, and Yeongjong, as well as certain island areas
• Gyeonggi Province: Designated cities including Suwon, Seongnam, Goyang, Bucheon, Anyang, Gwangmyeong, Siheung, Uiwang, Gunpo, Guri, Hanam, Uijeongbu, and Namyangju

Non-Overconcentration Control Areas — Standard Tax Rates Apply

These include areas designated for managed growth or development as well as regions outside the Seoul Metropolitan Area.

• Major areas in Gyeonggi Province: Hwaseong, Yongin, Pyeongtaek, Paju, Gimpo, Icheon, Yeoju, and Anseong
• Certain areas of Incheon: Songdo, Cheongna, and Yeongjong Free Economic Zones, Ganghwa County, and Ongjin County
• Other regions: Busan, Daegu, Daejeon, Gwangju, Ulsan, Sejong, and other regions outside the Seoul Metropolitan Area

2. Tax Comparison: Seoul vs. Non-Overconcentration Areas

Upon incorporation, a company is generally required to pay registration license tax to the relevant local government together with local education tax, which is imposed at 20% of the registration license tax.

Non-Overconcentration Control Areas — Standard Rate

Registration license tax is generally imposed at 0.4% of the company’s stated capital. After adding local education tax of 0.08%, the effective tax rate is 0.48%.

Even where the calculated amount is lower, a statutory minimum registration license tax applies.

Overconcentration Control Areas — Triple Rate

For companies subject to the Overconcentration Control Area surcharge, the registration license tax rate is increased threefold from 0.4% to 1.2%.

Correspondingly, the local education tax increases to 0.24%, resulting in an effective combined rate of 1.44%.

As the company’s capitalization increases, the additional tax burden resulting from the threefold surcharge can increase from hundreds of thousands to millions—or even tens of millions—of Korean won.

Stated Capital	Non-Overconcentration Area	Overconcentration Control Area	Additional Tax Burden
KRW 10 million	KRW 135,000 (minimum tax)	KRW 405,000 (3× minimum tax)	+ KRW 270,000
KRW 100 million	KRW 480,000	KRW 1,440,000	+ KRW 960,000
KRW 500 million	KRW 2,400,000	KRW 7,200,000	+ KRW 4,800,000
KRW 1 billion	KRW 14,400,000	KRW 14,400,000	+ KRW 9,600,000

3. Expansion Risks During the First Five Years After Incorporation

One of the most important periods to consider when establishing a company in an Overconcentration Control Area is the first five years following incorporation.

The applicable surcharge regime does not necessarily end with the registration license tax paid upon incorporation. It may continue to affect capital increases and acquisitions of business-use real estate during the first five years of the company’s existence.

① Triple Registration License Tax on Capital Increases During the First Five Years

When a company raises additional capital to finance expansion or attract outside investment, registration license tax is imposed on the registered capital increase.

Capital increase within five years: If a company located within an Overconcentration Control Area increases its stated capital within five years following incorporation, the amount of the capital increase may be subject to the same threefold registration license tax surcharge applicable upon incorporation.

Capital increase after five years: Once five years have elapsed since incorporation, a company located within an Overconcentration Control Area may generally become subject to the standard registration license tax rate rather than the threefold surcharge when increasing its capital.

② Increased Acquisition Tax on Head Office and Business Real Estate

As the business expands, the company may decide to purchase its own headquarters, office premises, factory, or other business-use real estate. Such acquisitions may also raise increased acquisition tax issues under Article 13 of the Local Tax Act.

Real estate acquired within five years: Where a company established in an Overconcentration Control Area less than five years earlier acquires real estate within the relevant area for use as its head office, branch, or other business premises, an increased acquisition tax rate may apply instead of the ordinary acquisition tax rate.

Real estate acquired after five years: Once five years have elapsed following incorporation, acquisitions of real estate within an Overconcentration Control Area may no longer be subject to the surcharge applicable to newly established companies, and the ordinary acquisition tax regime may apply.

Insisting on a Seoul Address May Mean Bearing Increased Taxes from Incorporation Through Business Expansion

Choosing a company’s registered head office merely for the prestige or convenience of having a “Seoul” address can potentially result in a significantly higher tax burden—not only upon incorporation but also during subsequent capital increases and real estate acquisitions.

To minimize unnecessary exposure to the Overconcentration Control Area surcharge while successfully establishing operations in Korea, companies should consider both strategic location planning and a careful review of their intended business activities from the outset.

The location of a company’s head office should therefore be evaluated not merely by comparing rental costs, but as part of a broader financial strategy that may affect the company’s capital planning over its first five years.

Foreign investors entering the Korean market should consider their anticipated five-year expansion plan at the incorporation stage and structure the location and capitalization of their Korean entity accordingly to avoid unnecessary tax costs.