North-KoreaTax Obligations Detailed

In North Korea, employer tax obligations primarily consist of turnover tax, income tax, local taxes, and social security contributions, with specific rates and exemptions depending on the industry, location, and investment type.

Turnover Tax

• A turnover tax applies to sales proceeds within North Korea.
• Rates range from 1.5% to 20%, with higher rates for restricted items like alcohol and tobacco.
• A 2% rate applies to general commodity sales.
• Service income is taxed at 2% to 4%.
• Exemptions or reductions may be available for Free Economic and Trade Zone (FTZ) enterprises.

Income Tax

• The standard enterprise income tax rate is 25% of taxable income from business activities and 20% on other income (interest, dividends, royalties, etc.).
• Reduced rates apply to enterprises in FTZs (14% on business income, 10% on other income) and priority sectors (10%).
• Enterprises in FTZs and priority areas may qualify for income tax exemptions for the first three profitable years and a 50% reduction for the subsequent two years, potentially extendable by a year for large infrastructure investments.
• Foreigners staying over 180 days are subject to progressive income tax up to 25% plus a 1% local tax. Reinvesting profits can lead to a 50% (or up to 100% in priority areas) tax refund on the reinvested amount.

Local Taxes

• A city management tax of 1% of the monthly payroll is levied.
• Various other registration and license fees may apply.

Social Security and Payroll Taxes

While North Korea claims to be tax-free, external estimates indicate the existence of social security contributions and other payroll-related deductions. Information available on this subject, especially from outside North Korea, can be limited or conflicting due to the country's opaque economic system. Employers should consult with local authorities or experts specializing in North Korean regulations to ensure compliance with all applicable regulations. It is also important to be aware that North Korean regulations are subject to change, so maintaining updated knowledge is essential.

In North Korea, the system of taxation is characterized by a lack of formal income taxes for individuals, coupled with various revenue-generating mechanisms that function as de facto taxes. These often involve mandatory contributions deducted directly from wages.

Individual Taxes

Officially, North Korea claims to have abolished personal income tax. However, various compulsory payments and deductions from salaries effectively act as taxes on individuals. These can include:

• "Loyalty funds": These are mandatory contributions often tied to specific events or anniversaries, such as the birthday of Kim Jong-il. The amounts can vary, with reported instances of 10,000 KPW per employee being deducted. These deductions often occur without the express consent of the workers.
• Wage appropriations for state revenue: A significant portion of workers' wages, estimated at over 50% in some cases, is appropriated by the state. This serves as a major source of foreign currency for the regime, particularly for workers employed overseas.
• Socio-cultural fees and insurance taxes: While specifics are limited, indirect taxation occurs through these deductions, effectively reducing the actual wages received by workers, especially those in special economic zones like the Kaesŏng Industrial Region.

Historical Context: North Korea did have a formal income tax system in the past. The system was eventually abolished in 1974. Before this time, it underwent several changes, beginning with rates ranging from 5% to 22.1% in the years following 1946 and then to a top rate of 9% later on.

Corporate Taxes

The North Korean government does impose forms of corporate taxation, despite its official stance on not having domestic taxes. This can appear in several forms:

• Payments based on profits: Enterprises outside special economic zones are required to make payments to the state based on their profits, which essentially functions as a form of corporate tax.
• Turnover tax: A turnover tax on consumption is a major revenue source for the government. While technically not a direct corporate tax, it impacts businesses and their pricing strategies.
• Taxes within Special Economic Zones: Specific laws, such as the Processing Trade Law and Lock Gate Law within special economic zones, outline corporate tax obligations. Estimates from the early 2000s placed this tax rate between 10% and 14%. In the Kaesŏng Industrial Region, an estimated 45% of workers’ wages were deducted as taxes in 2013.

It's important to note that information regarding North Korea's financial systems can be limited and difficult to verify due to the country's closed nature. Therefore, the provided information represents the current understanding based on available reports and analyses as of today, February 5, 2025, and is subject to change. Further research from reliable sources might be necessary to obtain more precise details.

North Korea currently uses a Turnover Tax (ToT) system, not a Value Added Tax (VAT) or Goods and Services Tax (GST) system like many other countries. As of February 5, 2025, North Korea has a Turnover Tax rate of 15%. This information is subject to change, and further confirmation from official North Korean sources is recommended for the most up-to-date details.

Turnover Tax in North Korea

The Turnover Tax (ToT) in North Korea is a tax on the gross revenue of businesses, distinct from a VAT system which taxes the value added at each stage of production. The current ToT rate is 15%.

Registration and Filing for Turnover Tax

Specific details regarding ToT registration and filing procedures for businesses in North Korea are not readily available. It's advisable to consult with experts specializing in North Korean tax regulations for detailed guidance.

Exemptions from Turnover Tax

Information concerning specific exemptions from Turnover Tax in North Korea is limited. Further research or consultation with North Korean tax authorities is recommended to obtain precise information on any existing exemptions.

International Trade and Sanctions

It's important to note that North Korea is subject to various international sanctions that can significantly impact business dealings and trade. Sanctions compliance is critical for any international business activity involving North Korea. Consulting with legal experts specializing in sanctions is crucial for up-to-date compliance information.

Additional Considerations for Businesses

Businesses considering operations in or involving North Korea should be aware of the complex regulatory environment, including strict government controls and limitations on foreign investment. It's essential to conduct thorough due diligence and seek expert advice before engaging in any business activities related to North Korea.

North Korea offers various tax incentives to attract foreign investment and stimulate economic growth.

Tax Incentives in North Korea

• Income Tax Exemption/Reduction: Enterprises operating in Free Trade Zones (FTZs) and designated priority sectors can benefit from income tax exemptions for the first three profitable years. This is followed by a potential 50% tax reduction for the subsequent two years, extendable by an additional year for large infrastructure investments. Standard income tax rates are 25% (14% in FTZs and 10% in priority sectors) for business activities and 20% (10% in FTZs) for other income like interest, dividends, and royalties.
• Reinvested Profits: Reinvesting profits back into North Korea can result in a 50% income tax refund (up to 100% in high-priority areas) on the reinvested amount.
• Property and Turnover Tax Reductions/Exemptions: Additional reductions and exemptions are available for FTZ enterprises regarding property and turnover taxes. Turnover tax rates typically range from 1.5% to 20%, with variations depending on the goods or services.
• Local Taxes: Local taxes include a 1% city management tax based on the monthly payroll, along with other registration and licensing fees.

Priority Sectors

North Korea prioritizes investments in sectors such as high technology, natural resource development, infrastructure construction, and scientific research and technological development. These sectors often enjoy preferential tax rates and other benefits. The specific details and applicable regulations surrounding these incentives should be confirmed through official North Korean government channels. As of today, February 5, 2025, this information is current but is always subject to change. Always consult with legal and financial professionals for the most current and accurate information.