A dissolved Korean (domestic) corporation files corporate tax on liquidation income within three months from the last day of the month in which the value of residual assets is finalised (Corporate Tax Act, Art. 84(1)). Liquidation income is residual assets less total equity as at the dissolution registration date (Art. 79(1)).
Liquidation income is a difference, not a profit
The most common misconception is that no profit in the final year means no tax. Liquidation income is not the profit in the income statement. Article 79(1) of the Corporate Tax Act defines it as the value of the residual assets on dissolution less total equity — paid-in capital or contributions plus surplus — as at the date the dissolution is registered. So even where operations made a loss, liquidation income arises if the disposal value of the assets exceeds book equity. Conversely, a company with accumulated deficits often has none. Article 79(4) requires loss carryforwards prescribed by Presidential Decree, existing as at the dissolution registration date, to be offset against total equity, but the amount offset cannot exceed the surplus within total equity. Carryforwards are therefore not deductible without limit, and a large accumulated deficit is not by itself reassuring. These liquidation-income rules (Arts. 79 and 84) apply to a dissolved domestic corporation. A foreign-invested company incorporated in Korea as a subsidiary is a domestic corporation and is covered; a foreign company’s Korean branch is not a domestic corporation, so the filings on closing a branch have to be confirmed separately.
The three months do not run from the dissolution registration date
The most frequent cause of a missed deadline is misreading the start date. Article 84(1)1 requires corporate tax on liquidation income to be filed within three months from the last day of the month in which the value of residual assets, as prescribed by Presidential Decree, is finalised. The trigger is the day that value is finalised — not the dissolution registration date. Registration starts the process; the point at which assets have been disposed of, liabilities settled and the remaining value fixed comes much later, sometimes a year or more. Separately, where a company in liquidation distributes part of its residual assets to shareholders and then continues business under the Commercial Act, liquidation income is the total distributions made between the dissolution registration date and the continuation registration date, less total equity at the dissolution date (Art. 79(2)), and the return is then due within three months from the last day of the month containing the continuation registration date (Art. 84(1)2). Which category applies has to be settled before the deadline can be.
Withholding reappears at the distribution stage
Liquidation does not end with the corporate tax return. Distributing residual assets to an overseas parent raises withholding again. Article 93 classifies a foreign corporation’s domestic-source income into interest, dividends, real estate, business income, royalties, transfer of securities and other heads, and Article 98(1) requires a payer of domestic-source income not attributable to a domestic place of business to withhold on payment and remit by the 10th of the month following withholding. Whether withholding applies and at what rate depends on how each part of the distribution is characterised, and a reduced rate under an applicable treaty prevails. Entering liquidation with parent-company loans or unpaid service fees unresolved makes this worse: treating them as forgiven creates a tax issue for the company, while repaying them requires withholding to be reconsidered at the point funds leave. Clearing intercompany accounts before the dissolution resolution is far simpler.
The filings that must close in the same window
At least two more filings attach to the liquidation timetable. First, VAT: Article 49(1) of the VAT Act requires the tax base and payable amount for each taxable period to be filed within 25 days after the period ends, and within 25 days of the month following the closure date where the business closes. The closing return does not wait for the taxable period to end — that matters. Second, if there were employees, deregistration from the four social insurances and severance settlement follow. Those three deadlines fall on different dates, which makes liquidation more a scheduling problem than a computation problem. At the point of the dissolution resolution we put the expected date for finalising residual asset value, the closure date and the employees’ leaving dates on one sheet and work each deadline backwards.
Running the numbers before the resolution is the cheapest step
The decisions that cannot be undone are generally the dissolution resolution and the manner of asset disposal. The order and price at which assets are disposed of create the residual asset value, and that value creates the liquidation income. Calculate after the resolution and the range of choices has already narrowed. Calculate before it, with the schedule of assets and liabilities in hand, and there is still room to adjust the order in which intercompany accounts are cleared and how assets are sold. This is not a technique for reducing tax; it is a check so that no unexpected liability appears. It is worth doing while ending Korean operations is still under review.