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North Korea (DPRK)

Country Name: Democratic People’s Republic of Korea (North Korea)
Currency: North Korean Won (KPW)
Primary Tax Authority: Ministry of Finance
Key Legislation:

  • Taxation Law of the DPRK
  • Foreign Investment Law
  • Enterprise Law
  • Joint Venture Law

Fiscal Authority Allocation

Centralized Fiscal System:
North Korea operates an extremely centralized fiscal system. The Ministry of Finance oversees all aspects of taxation, including corporate income tax (CIT), personal income tax (PIT), and taxes on foreign enterprises. Local governments have no independent taxing authority, as all revenue collection is centrally managed.

Corporate Income Tax (CIT)

Standard Rate: 25% (for domestic enterprises)
North Korea imposes a corporate income tax rate of 25% on state-run and cooperative enterprises. However, for certain foreign-invested companies and joint ventures, CIT rates vary based on the specific industry and agreements with the government.

Corporate Forms and Taxation:

  1. State-Owned Enterprises: The backbone of North Korea’s economy, taxed at the standard 25% CIT rate.
  2. Foreign-Invested Enterprises: Subject to varying CIT rates, ranging from 10% to 25%, depending on the sector and incentives granted under specific investment agreements.
  3. Joint Ventures: Foreign companies partnering with state-owned entities are taxed based on individually negotiated terms, typically with a reduced CIT rate for investments in priority sectors such as mining or manufacturing.

Exemptions and Incentives:

  • Special Economic Zones (SEZs): Companies operating in SEZs, such as the Rason Special Economic Zone, may benefit from reduced CIT rates, tax holidays, and customs duty exemptions. These zones are designed to attract foreign investment and allow limited market-based economic activity.

Goods and Services Tax (GST) / Value-Added Tax (VAT)

No Standard VAT System:
North Korea does not operate a standard VAT or GST system for domestic transactions. Instead, it relies on indirect taxes, which are applied through a variety of state-administered pricing mechanisms and trade duties.

For certain foreign-invested businesses, a simplified consumption tax system may be applied in SEZs.

Personal Income Tax (PIT)

No Personal Income Tax for Citizens:
In theory, North Korean citizens are exempt from personal income tax. Wages and salaries are centrally allocated by the government as part of the state-controlled economy. The state provides essential goods and services, effectively replacing the need for direct taxation of individuals.

For expatriates and foreign workers in North Korea, PIT is applied at rates ranging from 5% to 30%, depending on income levels and contract terms.

Additional Mandatory Contributions

No Formal Social Security Contributions:
The North Korean state provides healthcare, pensions, and other social services, funded by state enterprises and the central government. There are no mandatory social security contributions for workers, as all welfare services are administered directly by the state.

Withholding Taxes

  • Dividends: 10% withholding tax on dividends paid to foreign investors.
  • Interest: 10% withholding tax on interest payments to foreign investors.
  • Royalties: 10% withholding tax on royalties paid to foreign investors.
    Withholding tax rates may be reduced for foreign investors operating under special agreements with the government.

Transfer Pricing Rules

North Korea does not have formal transfer pricing rules. However, any transactions between foreign enterprises and domestic entities must be approved by the Ministry of Finance, and the government closely monitors pricing to ensure that state interests are protected.

Special Tax Regimes

  • Special Economic Zones (SEZs): North Korea has established several SEZs, including Rason, Sinuiju, and Kaesong, aimed at attracting foreign investment. Companies in these zones may benefit from reduced CIT rates, customs duty exemptions, and relaxed regulatory requirements.
  • Foreign Investment Incentives: Foreign companies involved in joint ventures, particularly in sectors such as mining, manufacturing, and energy, may qualify for tax reductions, customs duty exemptions, and other incentives.

Other Taxes

  • Trade and Customs Duties: Import and export duties are levied on goods entering and leaving North Korea. Rates vary depending on the product type and the political relationship with the trading partner. Foreign companies in SEZs may benefit from customs duty exemptions.
  • Land Use Fees: Companies, particularly foreign-invested enterprises, are subject to land-use fees rather than outright ownership. The government typically charges fees based on the location and size of the land used by the company.
  • Excise Taxes: Excise taxes are applied on luxury goods, alcohol, tobacco, and some imported items. Rates are set by the Ministry of Finance.

Double Taxation Agreements (DTAs)

North Korea has signed a limited number of double taxation agreements, primarily with countries that maintain favorable diplomatic relations with the regime, such as China, Vietnam, and Russia. These agreements help reduce withholding taxes on dividends, interest, and royalties for foreign investors.

Local Taxes

There are no local or municipal taxes in North Korea. All revenue collection is controlled by the central government.

Compliance and Reporting

Annual Filing:
Corporate tax returns for foreign-invested enterprises must be filed annually, with deadlines and filing procedures determined by the Ministry of Finance. The state-owned enterprises are governed by a different set of administrative guidelines and do not follow typical international tax filing practices.

Penalties for Late Filing:
Non-compliance with North Korean tax laws, particularly for foreign companies, can lead to fines, penalties, and administrative action, including expulsion from SEZs or revocation of business licenses.

Recent Developments

Limited Market Reforms:
Despite its highly centralized economy, North Korea has allowed limited market reforms in recent years, particularly in SEZs. The government continues to promote these zones as areas where foreign investment is encouraged, offering tax incentives and relaxed regulatory frameworks. However, the political environment remains unpredictable, and foreign investments are subject to the whims of the regime.

Economic Sanctions:
Due to international sanctions, many foreign companies are hesitant to engage in business with North Korea. This has led to a reliance on Chinese and Russian partners in specific sectors, particularly mining and energy, where joint ventures are structured with preferential tax arrangements.

Infrastructure Development:
The North Korean government has expressed interest in developing its infrastructure, especially in sectors like energy and transportation. Special tax incentives are offered to foreign investors willing to participate in these projects, though actual participation is limited due to geopolitical risks.

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