2012 Tax Law Changes


1. Further segmentation of the scope of ‘Business Services’ subject to zero rate VAT


In the recently revised Presidential Decree of Value Added Tax Law (“PD-VATL”), ‘business facilities management and business support services’ shall be subject to zero rate VAT. 


Under Article 11 of the Value Added Tax Law (“VATL”) and Article 26 of the PD-VATL before the amendment, in the case where ‘business services’ are provided in Korea to a non-resident or a foreign (non-Korean) company without its permanent establishment in Korea and the consideration is received in Korean Won from the foreign company through a designated foreign exchange bank, the service provision may be subject to zero rate VAT.


‘Business services’ under the VATL were made reference to the previous Standard Industry Classification Table (“SICT”) and classifications of business were changed in the ninth revision to the SICT in 2007, where the ‘business services’ were subdivided into‘professional, scientific and technical business service’, ‘business facilities management and business support services’ and ‘publication, video, broadcasting communication and information services’ under the revised SICT.


The scope of ‘business services’ under the PD-VATL was amended in February 2012 in order to reflect the foregoing change of the classifications of business. In this regard, ‘professional, scientific and technical business service’ and ‘publication, video, broadcasting communication and information services’ shall be subject to zero rate VAT continuously, whereas ‘business facilities management and business support services’ were excluded from the transactions subject to zero rate VAT.


There were concerns that this exclusion may have negative impact on businesses of ‘business facilities management and business support services’. For this reason, ‘business facilities management and business support services’ were additionally included in the category of the services eligible for the zero rate VAT in the recent revision of the PD-VATL.

The above amendment is effective for goods/services to be provided on or after July 1, 2012. 





2. Amendment of the Korea-Swiss tax treaty 


The governments of Korea and Swiss agreed to amend the Korea-Swiss tax treaty by exchanging ratification of tax treaty in a recent meeting held in Bern, Swiss on July 10, 2012 and the treaty came into force on July 25, 2012.


The amended treaty newly contains a provision on exchange of taxation information including financial information. The Korean and Swiss tax authorities can request each other financial information even with bank account number alone and without personal information (name, address, etc.). The request for exchange of taxation information is applicable starting from the effective date of July 25, 2012 for the information retrospectively from January 1, 2011.


The amended treaty would lower the reduced withholding tax rates on interests, dividends and royalties and permit taxation on capital gains derived from alienation of stocks with underlying real estate(*) in the country, where the capital gains were sourced from. The foregoing amendment will be effective for the payment to be made on or after January 1, 2013.


(*) stocks with underlying real estate: in the case where real estate comprises 50% or more of the total assets of a stock holding company.  



3. Management of bank account to get refund of overpaid national tax


In order to get refund of the overpaid national tax, an application of bank account opened/changed should be submitted to the district tax office with the Form No. 22 as required under the Basic Law on National Taxes. However, if the taxpayer fills out a taxpayer’s bank account information for tax refund when filing the tax return, and the refundable national tax amounts are less than KRW 20 million, the national tax can be refunded to such designated bank account under Article 59 of the National Tax Collection Work Process Regulations (amended on May 17, 2012).