contents

INCOME

A. Taxable Income

As stated above, resident individuals are taxed on their worldwide income. Non-resident

individuals are taxed only on Korean-source income.

Regarding taxation method, income derived by residents and non-residents is subject to

global and schedular taxation.

­  Under global taxation, interest, dividend, real estate rental income, business income,

wages and salaries, temporary property income, pension income, and other income are

aggregated and taxed progressively. It is notable that Interest and dividends were taxed

globally until 1997, and then they were temporarily excluded from global taxation. A

combined income of dividend and interest exceeding 40 million Won is subject to global

taxation, otherwise interests and dividends are subject to withholding tax of 15%.

­  Under schedular taxation, however, capital gains, retirement income, and timber income

are taxed separately at varying tax rates.

GLOBAL INCOME

Global income is the income which is subject to global taxation and includes interest,

dividend (including deemed dividend), real estate rental income, business income, wage and

salary, temporary property income, pension income and other income.

*  Interest

-  Interest and discount amounts received during a tax year from debentures and securities

issued by a government or a domestic or foreign corporation

-  Interest and discount amounts received during a tax year from deposits and installment

savings payable both within and outside Korea

- Profits from Trusts

- Interest from non-commercial loans

- Savings-type insurance premiums with a maturity of less than seven years

*  Dividends

-  Dividends, distributions of surplus, and interest received from a domestic or foreign

corporation during construction

-  Distributions of profits received from a non-corporate entity such as private associations

or foundations

- Deemed dividends and distributions

- Amounts designated as dividend by the Corporation Tax Law

-  Distributions of profits arising from securities investment trusts, except for profits or

losses arising from the transfer or revaluation of securities listed on the Korean Stock

Market or the Korean over-the-counter trading market (KOSDAQ)

*  Real estate rental income

- Income from leasing land, from fixtures thereon, and rights pertaining thereto

- Income from leasing mining and factory foundations or from mining rights

*  Business income

- Profits from livestock, forestry, hunting, and fishing industries

- Profits from mining and quarrying

- Profits from manufacturing

- Profits from provision of electricity, gas, and water services

- Profits from construction business

- Profits from wholesale or retail trade, operation of a hotel, or catering

- Profits from transporting, warehousing, or communications

- Profits from banking, insurance, and real estate dealing

- Profits from real estate business, leasing, and business services

- Profits from educational services

- Profits from health and social welfare services

- Profits from social and personal services

- Profits from household services

*  Wage and salary income

­ Class A:

Wage, salary, remuneration, allowance, bonus, and any other allowance of a similar

nature received in return for services

Income, other than retirement income, received due to retirement

­ Class B:

Wages and salaries received from a foreign agency or from the U.N. Forces in Korea

(excluding the U.S. Armed Forces)

Wages and salaries received from a foreigner or foreign corporation outside Korea,

excluding those claimed as a deductible expense for a Korean place of business of a

non-resident or a foreign corporation

*  Temporary property income

-  Gains from the alienation of paintings, writings, or antiques as prescribed by the

Presidential Decree

-  Gains from the alienation of mining rights, fishing rights, industrial property rights,

industrial information, industrial secrets, trademarks, goodwill (including certain leases of

stores), rights derived from the permission to exploit earth, sand, and stone, the right to

exploit and use of subterranean water, etc.

* Pension income

- national pension

- public official pension

- retirement pension

- private pension, as set out in the Special Tax Treatment Law

- incomes similar to those above, which are paid in the form of annuities.

* Other income

­  The term "other income" denotes specifically designated categories of income other

than interest, dividends, real estate rental income, business income, wages and salaries,

temporary property income, retirement income, timber income, and capital gains. Other

income includes the following:

· prize money awards and other similar money or goods,

· money or goods received from participation in a lottery, and any other prize won in

a contest,

· race ticket winnings,

· fees for use of copyrighted materials received by any person other than the creator of

the material,

· royalties given as consideration of using films or tapes for radio or television

broadcasting, or from such use of other similar assets or rights,

· rent derived from a temporary lease of real estate or personal property, goods, or

places, and

· damages or indemnity payments for breach or cancellation of a contract.

NON-GLOBAL INCOME (SCHEDULAR INCOME)

Non-global income denotes the income which is separately taxed from the global income

at varying rates. It includes Retirement income, Capital gains and Timber income.

* Retirement income

­  Class A: Retirement allowances: retirement allowance from the reserve of the National

Pension Fund received by a Class A wage and salary income earner

­  Class B: Retirement allowance received by a Class B wage and salary income earner

* Timber income

­ Income arising from sale of timber as designated by law

* Capital gains

­ Income arising from the transfer of land or buildings

­ Income arising from the transfer of rights related to real estate

­ Income arising from transfer of shares in an unlisted company

B. Non-Taxable Income

Non-taxable income is the income for which the Government waives its taxing rights.

Whether an application for non-taxation is made or not, this kind of income is not

taxable. A few examples for each income are addressed as follows.

INCOME DEDICIATED TO PUBLIC GOODS

Profits from property placed in trusts for public welfare

RENTS FROM CERTAIN CATEGORIES OF REAL ESTATE

Income from the lease of rice fields or dry fields etc.

INTEREST, DIVIDEND INCOME

Interest from long term home savings; over seven years and less than 1 million Won per

month ;

Interest or dividends from special employee savings of 500,000 Won or less per month;

those with yearly income of less than 30 million Won ; and so on.

BUSINESS PROFITS

Profits not exceeding 12 million Won per year from other auxiliary businesses, such as

fish breeding, straw production, and so on.

WAGE AND SALARY INCOME AND RETIREMENT INCOME

Pay received by certain enlisted men in the armed forces, or persons mobilized under law

Compensation or other payments made for consolation received by those injured or

debilitated while furnishing a service

Education fees as prescribed by the Presidential Decree

Payments in the nature of reimbursement for expenses actually incurred (including such

items as overseas service allowance, housing allowance, etc., received by foreign wage and

salary earners)

Wages received by the person working in a foreign government or an international

organization(the United Nations and its affiliated organs) as prescribed by the Presidential

Decree ; in case of a foreign government, the principle of reciprocity is applied

Wages not in the form of an overseas service not exceeding 1.5 million Won per month

Reimbursement expenses of those prescribed by the Presidential Decree

Allowances for night shifts, overtime work, and holiday duty received by blue-collar

employees with monthly wages not exceeding one million Won

OTHER INCOME

Awards or compensation received under the National Security Law ; and so on.

CAPITAL GAINS

Capital gains from the disposition of real estate resulting from adjudication of bankruptcy;

Capital gains from exchanges, division, or annexation of farmland by the government and

local autonomous bodies or from the exchange of land by the owner for his own

cultivation

Capital gains from the transfer of one house per household, together with the land upon

which the house sits (limited to an area of ten times the floor space of the house, or five

times the floor space in a designated urban planning district): To obtain this exemption,

the house must be held by the seller for more than three years, and the house must not

be "luxurious," i.e., not worth more than 600 million Won. This exemption is extended to

a second house per household in case where a taxpayer acquires a rural house (located in

areas other than Seoul or Kyunggi-do) by inheritance, or for the purpose of returning to a

farming lifestyle, or due to rural exodus and so on.

ANNUITY INCOME

Survivor's pension or disability pension received under the National Pension Act;

Various annuities received under the Industrial accident Compensation Insurance Act etc.

C. Tax-exempt Income

WAGE AND SALARY INCOME

In case a taxpayer has any income counted in the taxable global income as follows, an

amount calculated by multiplying the amount of calculated global income tax by the ratio

of the said income to the taxable global income is exempt from income tax upon

submitting an application for tax-exemption:

­  Wages receivable by a foreigner sent to Korea under a governmental agreement from

both parties or one party;

­  Wages receivable by a foreigner who furnishes work or services under a technology

inducement contract within 5 years from the date of authorization of the contract; or

­  Income accruing from the operation of ships or aircraft engaged in international traffic

by non-residents and alien residents, provided that the reciprocity basis is applied.

CAPITAL GAINS

In case a taxpayer has the following capital gains, the exempted amount is calculated by

applying the above provisions;

­  Capital gains from transfer of land and building for the purpose of moving a factory

which has operated for 5 or more years;

­  Capital gains from transfer of land and building for the purpose of moving a ranch

which has been operated for 10 or more years.

The provisions governing calculation of taxable income are applicable on the basis of the

real contents thereof.

The tax base shall be calculated for global income, retirement income, timber income and

capital gains, respectively. However, any losses or losses carried over within 5 years in

real estate rental, business or timber income may be offset against the amount of global

or timber income on the basis of the summing up calculation.

The global income tax base is the amount remaining after deducting personal exemptions

from the aggregate of taxable global incomes such as interest income, dividend income,

real estate income, business income, wage and salary income, and other income.

The following incomes are not included in the global income but are either assessed

separately or are non-taxable:

­ Non-taxable income

­ Wage of workers paid on a daily basis

­  Interest and dividend income subject to separate taxation which is eligible for reduced

withholding rates

­  Excessive refund of the workplace mutual-aid association as prescribed in the Income

Tax Law

­  Other income of not more than 3 million Won per year as prescribed in the Law

­ Annuity income subject to separate taxation pursuant to the provisions of the Law

The tax base of retirement income, timber income or capital gains is the amount

remaining after deducting personal exemptions from the respective income amount (the

personal exemption may be deducted if there is any residual after deducting from global

income).

The taxable period for gross receipts and necessary expenses of a resident is the period to

which the receipts and expenses should be attributed and reported. The timing for

attribution, for each type of income, is as follows.

Generally individual taxpayers use the calendar year as tax year; January 1 through

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January 1 through the date of death, in the case of death of a resident

January 1 through the date of leaving Korea, in the case of a resident who becomes a

non-resident

Actual dividend and distribution : Amount of income

Deemed dividend

­  The amount in excess of the investment received by an investor through decreasing the

capital of a corporation. ;

­  The value of stock dividends or any other corporate rights received by stockholders or

investors by capitalizing corporate surplus except for capital reserves or reserves for

assets revaluation. ; and so on

Taxable income

­  Total amount of income in each taxable period remaining after deduction of necessary

expenses and losses carried over within 5 years from gross receipts

Gross receipts

­ Aggregate of receipts accruing from lease of real estate

­  If key money or deposit is received as a rent and the tax base is determined by

estimation or the deposit is used as prescribed in the Presidential Decree, the amount

calculated by multiplying the key money or deposit exceeding the construction expenses

of the rental estate by the interest rate for a time period maturing in one year as of the

closing date of the taxable period makes an amount of gross receipts.

Necessary expenses

­  Aggregate of expenses required to produce the total amount of income earned during

the taxable period

­  If the tax base is determined on the basis of estimation, the standard expenses determined

by the Government are regarded as necessary expenses.

Total amount of income in each taxable period remaining after deduction of necessary

expenses and losses carried over within 5 years from an amount of gross receipts.

The total amount of income remaining after the deduction of the following amount used to

calculate the tax base for wage and salary income, after the deduction described herein

has been made for that taxable period. Deduction for wage and salary income are as

computed in the table described below.(80,000 Won per day for a daily worker).

Total amount of income remaining after the deduction of the following amount with the

deduction ceiling of 6 million won.

Taxable income is calculated as follows ;

That means, the total amount of income remaining after deduction of the following

amounts

­ Basic Deduction for Retirement Income

·50% of retirement pay

­ Additional Deduction by the Length of Service

Income arising from the transfer of land, buildings, or rights thereon, stocks, and other

assets specifically enumerated in the Income Tax Law shall be taxed separately from

global income. This separation was created to stabilize real estate prices and for tax

purposes.

­  "Necessary expenses" includes acquisition costs, costs of installations or improvements,

and other capital expenditures.

The special deduction for long-term possession of land or real estate is as follows: 10%

of the capital gain if the possession period is longer than three years but does not exceed

five years, 15% of the capital gain if the possession period exceeds five years but does

not exceed ten years, and 30% of the capital gain if the possession period is over ten

years.

­  A capital gains deduction of 2.5 million Won is given without regard to the amount.

However, the special deduction for long-term possession or capital gain deduction is not

allowed for unregistered real estate.

For a luxurious house of which the value is 600 million Won or more, to which the

one house per household rule does not apply, the taxable gains are calculated as

follows:

Aggregate amount of income in each taxable period remaining after deducting expenses for

forestation, acquisition, management and lumbering of the forest, a special deduction of

6,000,000 Won per year and losses carried over within 5 years from the gross receipts.

Aggregate amount of income less necessary expenses. For the types of other income

enumerated in the Article 87 of Presidential Decree of Income Tax Law, i.e. Remuneration

from a lecture of an independent nature and similar incomes, are given deduction of 80%

thereof as necessary expenses.

As stated before, a non-resident who does not have a domestic business place has earned

wage and salary income in Korea, most of the provisions concerning the tax base and tax

amount of residents shall apply to him/her. In terms of calculation of the tax base and tax

amount, a non-resident is not entitled to basic deduction(except for himself), additional

deduction(except for himself) and special deduction. A brief on the income deductions are

addressed below. There are four exemptions and deductions related to global income.

Residents with global income are entitled to annually deduct an amount equivalent to 1

million Won multiplied by the number of persons in the taxpayer's family, as determined

below.

­ A resident taxpayer oneself

­  A spouse with income of less than 1 million Won per year, excluding interest,

dividends, and income from real estate

­ Dependents living in the same household with the taxpayer

A dependent eligible for the Exemption is a lineal ascendant aged sixty or older

(fifty-five for females), a lineal descendent of the resident aged twenty or less(there is

no age restriction for a handicapped person), a sibling aged under twenty or over sixty,

and all other members of the household supported by the resident.

When a person who is qualified for Basic Deduction〔oneself, his/her spouse, dependent

s〕falls under any of the following situation, the amount calculated by multiplying the

number of persons by the amount below, shall be deducted each year from the taxpayer's

income under each case.

ⅰ) where the person is 65 years old or more: ￦1,000,000 per capita

- 70 years old or more: ￦1,500,000 per capita

ⅱ) where the person is handicapped, as prescribed by the Presidential decree:

￦1,000,000 per capita

ⅲ) where the person is a married woman having her spouse, or a head of family having

dependents having no spouse: ￦500,000 per capita

ⅳ) where every employees who has lineal descendant under the age of 6 years:

￦1,000,000 per capita

A resident with wage and salary income(excluding daily workers), if the number of

persons eligible for basic exemption is one or two, may deduct 1 million Won or 0.5

million Won respectively.

Alternatively, a taxpayer may elect to choose an annual standard deduction of 600,000

Won if he or she fails to claim deductions in question or accrues only global income

without any wages or salaries earned.

Scope of Persons Eligible for Personal Exemptions and Determination of Eligibility

Persons eligible for spousal exemption, dependent exemption, or exemption for handicapped

or aged persons must be (i) a spouse and/or unmarried lineal descendant and (ii) family

members who are listed on the registration card of the resident actually living at the

domicile or residence. A person who has temporarily left the taxpayer's domicile or

residence for reasons of schooling, medical treatment, business, or work may still be

entitled to an exemption. The determination of eligibility shall be made based on the

existing conditions at the close of the tax period in question.

Pursuant to the Article 51-3 of the Income Tax Law, the total of following pension

contribution paid for pension insurance in the name of the taxpayer him/herself is

deducted.

­  Pension insurance contribution paid by the taxpayer him/herself based on National

Pension Law

­  Contribution paid by the taxpayer him/herself based on Soldier Pension Law, Civil

Service Pension Law etc.

The tax amount on global income is the aggregate of amounts calculated by applying each

tax rate successively to the income in the relevant tax bracket:

The tax amount of retirement income is calculated by dividing the taxable income by the

number of years of service, applying the tax rates, and again multiplying the amount by

the number of years of service.

Tax rates on timber income are the same as those applied to global income.

Where a resident has paid or is to pay foreign income tax abroad, the tax amount payable

is deducted from the income tax within the limit of an amount equivalent to an amount

calculated by multiplying the income tax amount by the ratio of income from foreign

sources to the total taxable income. If any foreign income tax amount paid or to be paid

to a foreign government, exceeds the deduction limit, the excess amount may be carried

forward to the taxable period to be terminated within five year from the taxable period

following the current taxable period, and deducted within the deduction limit of that

taxable period. An application for deduction shall be filed with the competent District Tax

Office or the tax withholding agent not later than the end of the final tax return period or

the end of the year-end adjustment period.

Where a resident's dividend income from domestic corporations is counted in the global

income, an amount calculated as follows is deducted from the global income tax amount.

­  19/100 of the corporate income tax attributable to the dividend in question will be

added to the amount of dividend income actually received by a shareholder.

­  This figure will then be used to calculate the individual income tax of the shareholder.

­  Thereafter the 19/100 portion will be credited against the calculated individual income

tax amount or will be refunded to the shareholder.

The following amounts shall be credited against global income tax on wage and salary

income. Where the amount of credit exceeds 500,000 Won, the credit is limited to

500,000 Won.

In the case of daily worker, the amount of credit is limited to total tax multified by

55%.

If a resident has lost 30% or more of the total value of his business assets due to a

disaster, the tax amount equivalent to the ratio of the value of lost assets to the value of

total assets is deducted from the income tax amount.

If a person subject to Simple Book Keeping calculates his income amount on the basis of

the entries in the book exhibited and entered, and submits the document in making a final

return on tax base pursuant to the provisions of Presidential Decree, the outcome obtained

by multiplying by 10/100 the amount calculated by multiplying the calculated global

income tax amount or the calculated forestry income tax amount by the ratio of the sum

of real estate rental income and business income calculated pursuant to the entries in the

book from the global income, or the ratio of the forestry income calculated pursuant to

the entries in the book to forestry income shall be the amount deducted. If the amount

subject to deduction exceeds one million won, only one million won shall be deducted.

Under the 1994 tax reform, the individual income tax assessment system was converted

into a self-assessment system under which each taxpayer is required to file a return and

pay the proper amount of tax by the due date as prescribed by the individual income tax

law.

A resident with global income is subject to pay, as interim prepayment, an amount

equivalent to half of the global income tax amount paid or payable in the preceding year,

by the end of November.

The income tax amount paid or payable in the preceding year is the aggregate of the

tax amount payable for interim prepayment in the preceding year, the tax amount finally

payable and the amount of penalty taxed.

Return on tax base

­  A resident who has global income, retirement income, capital gains or timber income

in the taxable period is required to file a return to the superintendent of the competent

district tax office in the place of tax payment within the period from May 1 to May 31

in the following the year concerned.

Documentation

­  Tax returns are required to be accompanied by the following documentations:

· Documents certifying a person eligible for personal exemptions;

· Documents in which gross receipts and necessary expenses calculated are recorded;

· In the case of persons who have real estate income, business income or timber

income, a balance sheet, an income statement, a trial balance, and other required

documents;

· In the case where the gross receipt is less than 300,000,000 Won, the simplified

income account statement;

· Particulars of tax free reserves

Residents not liable for submitting final returns :

­ The following residents are not liable to submit final returns:

· A resident who has only ① wage and salary income, ② retirement income, or ③

both ① and ② ;

· A resident who has only capital gains and has filed a preliminary returns;

· A resident who has only ① interest income subject to separate taxation, ② dividend

income subject to separate taxation, ③ both ① and ②, or ④ other income subject to

separate taxation.

· A resident with Class B wage and salary income or retirement income who has paid

income tax using taxpayer association

A resident who has submitted a tax return shall pay an amount remaining after deducting

the amount enumerated below from the calculated tax amount of global income, retirement

income, capital gains or timber income for each taxable period within the return period:

­ Tax credit amount;

­ Interim prepayment;

­ Estimated tax payment by real estate dealer, or for capital gains;

­ Tax paid for occasional assessment;

­ Tax withheld at source;

­ Tax paid through a taxpayers association

In the case of a resident with tax liability exceeding 10 million Won, tax, as described

below, may be paid by installments within 45 days from the closing day of the payment

period.

­ If the tax amount is 20 million Won or less; the excess over 10 million Won;

­  If the tax amount exceeds 20 million Won: less than half of the tax amount payable

Taxpayer

­  An individual or corporation whose tax liability (corporation tax, customs duty,

acquisition tax, or registration tax as well as individual income tax) is reduced under the

Special Tax Treatment Control Law, Local Tax Law, or Customs Law.

Tax Base and Tax Rates

­  Basically, Special Tax for Rural Development is a surtax levied on the amount of

exemption of individual income tax, corporation tax, customs duty, special excise tax,

and securities transaction tax. The tax base of STRD is the exempted amount of the

above mentioned taxes, where the exemptions are stipulated in the Special Tax

Treatment Control Law etc. Tax rates are as follows ;

Return and Payment

­ STRD is filed and paid at the same time global income return (tax) is filed (paid).

Taxpayer

­  Individuals and corporations is liable to the payment of income tax, corporation tax, or

farmland tax

Tax Base

­  amount of income tax, corporation tax, or farmland tax. which means Inhabitant tax is

a income tax surtax, assessed on the basis of income tax.

­ Taxation period : one year

Tax Rates

­  10% of income tax

Return and Payment

­ In case where pro rata income tax is filed by the taxpayer, the taxpayer shall return

and pay the computed tax.

The income tax is to be self-assessed and filed by the taxpayer. However, the government

will correct the tax base and the tax amount if there are any omissions or errors in the

return filed, or if the taxpayer has not submitted the payment statements or the aggregate

summary of accounting statements in whole or in part.

In cases where the government determines or corrects the tax base and the tax amount

payable by a taxpayer, the tax base and the tax amount must be determined or corrected

according to the law based on the a final return and the attachments thereto, or by a field

audit.

Determination must be completed within a year from the filing due date except in cases

such that the Commissioner allows an extension of time for special investigation, or

approves a late determination based on extenuating circumstances.

To prevent income tax evasion, the government may, monthly or occasionally, determine a

tax base prior to the filing or determination period in the following

circumstances(Occasional assessment) :

­  when a taxpayer frequently moves his business place, domicile, or residence without

reporting such movements to the government;

­ when a taxpayer has closed down or has suspended his business operation due to poor

business conditions or other reasons; and

­ when a taxpayer is located in an area deemed to be a place of frequent moves for

place of business, residence, or domicile.

If the amount of other income is not more than 1,000 Won per case, income tax is

waived.

If the government determines or adjusts a tax base or a tax amount, the government shall

notify the concerned resident the tax rates and/or any other necessary matter in writing.

If a taxpayer does not pay the full tax amount for the year in question, the government

will endeavor to collect the unpaid tax amount within three months after the due date of

payment.

When the income tax amount paid by the taxpayer is less than that determined by the

government, the unpaid amount of tax will be collected.

A person paying interest, dividends, business profits prescribed by the Presidential Decree,

Class A wage and salary income, and retirement income, or other income is required to

withhold income tax due thereon at the time of such payment, and to pay it to the

government by the tenth day of the following month. However, a businessman who has

less than ten employees on average at the end of every month from January to October of

the preceding year may pay taxes withheld to the government by the tenth day of the

following month each half-year, after obtaining the approval of the head of the tax office

concerned.

Interest on a long-term saving with a redemption period of 5 years or longer and interest

on a long-term bond with a redemption period of 5 years: 30%

Other interest: 15%

Interest from non-commercial loans : 25%

Business income from personal services and medical or health services are exempt from

VAT: 3% of total revenue

Tax rates : the basic tax rates applicable to global income

Monthly Tax Withholding : If wage or salary is paid monthly, the tax amount to be

withheld is calculated by the "Simplified Tax Table" attached at the end of the Income

Tax Law.

Year-end adjustment : A person subject to tax withholding must calculate the total annual

tax amount in January of the following year or at the time of the last payment of income

in the year (i.e., when the income earner completes employment during the year) and

collect or refund the difference between the tax amount payable. This amount is calculated

by applying the basic tax rates and the tax amount withheld, which is explained in the

Simplified Tax Table.

Application for personal exemption : Class A wage and salary income earners who are

entitled to personal exemptions must submit an application for personal exemptions,

together with documentary evidence in support thereof, to the withholding agent before

receiving wage and salary income for January of the following year.

Daily wage : Tax is withheld from the wages of daily workers at a rate of 9%.

national pension, government employee pension: basic tax rates (identical to labor income

tax)

retirement pension, private pension: 5%

If a resident either fails to file a tax return or under-reports the relevant income, an

amount equivalent to 20% of the income unreported or under-reported will be

included in the calculation of tax amount as follows:

When tax is not paid properly, the penalty amounts to 0.03% on the unpaid amount per

day.

When a taxpayers association fails to fully pay the income tax due within the time

required, a penalty of 5% of the unpaid amount shall be added to the amount of tax due.

If a person subject to tax withholding fails to withhold tax at source or fails to pay the

government tax withheld within the payment period, a penalty of 10% of the amount of

tax not withheld is added to the amount of withholding tax.

If a concerned person fails to submit a payment report within the reporting period or if

the reported facts concerning payment are found to be unclear as specified by the

Presidential Decree, a penalty in the amount of 2% of the payment due shall be charged.

If a concerned person fails to issue or submit a proper tax invoice regarding the

transaction involved, a penalty in the amount of 1% of the transaction shall be charged.

If a taxpayer has an obligation to keep double entry books but fails to keep available invoices

in the form generally accepted (including credit card receipts) as supporting evidence for the

payment of goods received and services rendered, a penalty may be imposed in the amount of

2% of the total value of such unsupported transactions. The penalty may be applied even if

the expense deduction is sufficiently substantiated to be allowed.

If a taxpayer who has an obligation to keep double entry books does not submit a list of

invoices to the tax office, a penalty tax amounting to 1% of the unreported amount shall

be charged.

If a taxpayer operating a business fails to maintain proper books and records, such

taxpayer will be subject to penalty tax equal to 20% of the amount of tax due for the tax

year involved multiplied by the following rate "R."

R = improperly documented portion of taxable income divided by total taxable income

A taxpayer conducting a business shall maintain books and records adequate to support the

computation of the amount of taxable income. Such books and records shall be of

sufficient detail to allow an inspector to understand the relevant facts of all transactions

conducted by the business.

Persons who pay the following must submit to the government a monthly report by the

end of the following month in which the payments were made. However, payments of

wages and salary shall be reported by the end of February of the following year in which

the payments were made.

­ Interest

­ Dividends

­ Amount withheld from a business

­ Wages, salaries, and severance pay

­ Other amounts representing income to the recipient

­  Amounts paid to non-residents representing income from domestic sources, other than

wage, salary and severance payments

Under the system of global taxation of financial income, persons required to withhold tax

must supply information regarding the income subject to withholding by the end of

February of the year following the year in which the payments were made.