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Understanding Secondary Tax Liability for Shareholders in Korea: A Comprehensive Guide

In Korea, shareholders, particularly those with controlling stakes, may face secondary tax liability. This liability arises when the company fails to meet its tax obligations, shifting the responsibility to significant shareholders.

Understanding this concept is crucial for investors in Korean enterprises, as it directly impacts their financial and legal responsibilities.

What is Secondary Tax Liability?

Secondary tax liability refers to the obligation of shareholders, usually controlling ones, to pay taxes owed by the company if it defaults. This concept, rooted in the Framework Act on National Taxation, aims to prevent tax evasion and ensure fiscal responsibility in corporate operations.

How Does it Affect Shareholders?

This liability significantly impacts shareholders, particularly in cases of corporate restructuring or insolvency. Shareholder who owned more than 50% of shares must be aware of their potential financial obligations, which can arise unexpectedly if the company they invest in faces tax issues.

Key Considerations for Shareholders

  1. Diligence in Corporate Oversight: Shareholders should actively monitor the company’s financial health and tax compliance.

  2. Understanding Legal Framework: Familiarity with Korean tax laws, including the Framework Act on National Taxation, is essential.

  3. Risk Management Strategies: Implementing risk assessment and management strategies can mitigate potential tax liabilities.


  1. What triggers secondary tax liability for shareholders in Korea?

    • This liability is triggered when a company fails to pay its taxes on time, and the responsibility shifts to the controlling shareholders who owned more than 50% of whole paid-in-capital.

  2. Are all shareholders liable?

    • Generally, this liability applies to controlling shareholders who owned more than 50% of issued shares or those with significant stakes in the company.

  3. Can secondary tax liability be disputed?

    • Shareholders can dispute this liability, but it requires thorough legal understanding and often, litigation.

  4. Does secondary tax liability apply in all business structures?

    • It primarily applies to corporations, especially those undergoing restructuring or facing insolvency.

  5. How can shareholders protect themselves?

    • Regular audit checks, legal consultations, and understanding corporate financial health are key protective measures.

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