2014 Tax Law Changes
Proposed tax law changes announced by the government on August 2013 were approved by the National Assembly on December 31, 2013 with several amendments and additions. We summarized below some of the major amendments/additions made to the proposed tax law changes for 2014 to keep you updated. Most of the amendments/additions of tax law changes we discussed below came into force, unless indicated otherwise, for the fiscal year starting, or income earned on or after January 1, 2014.
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1. Individual Income Tax Law (IITL) |
■ Changes in tax brackets for top marginal income tax rate of 38% (IITL-Article 55)
The individual income tax bracket for top marginal tax rate of 38% is adjusted to taxable income exceeding KRW 150 million, down from KRW 300 million.
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Old provision |
Amended provision |
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• Income tax brackets and tax rates
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• Income tax brackets and tax rates
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■ Increase in Earned Income Tax Credit limit (IITL-Article 59)
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Old provision |
Amended provision |
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•Maximum limit - KRW 500,000 |
•Maximum limit (Unit: KRW)
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■ Conversion of income deduction for donations to tax credits (IITL-Article 52)
Income tax deduction for qualified donations will be replaced by tax credits. The tax credit rates will be 15% for the donation amounts up to KRW 30 million and 25% for the excess.
■ Expanded cash payment transactions subject to mandatory issuance of Electronic Receipt Slips (IITL-Article 162-3)
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Old provision |
Amended provision |
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• Threshold - KRW 300,000 per cash transaction
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• Threshold - KRW 100,000 per cash transaction
• Effective date - On or afterJuly 1, 2014 |
■ Eased heavy tax on capital gains (IITL-Article 104)
In an effort to boost real estate market, heavy tax on capital gains will be eased.
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Old provision |
Amended provision |
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• Capital gains tax on multiple home owners - 2 houses : 50% - 3 or more houses : 60% (not enforced until December 31, 2013)
• Capital gains tax on transfer of non-business purpose land - 60% (not enforced until December 31, 2013)
• Capital gains tax on transfer of short-term held property - less than 1 year : 50%
- 1 year ~ less than 2 years : 40%
• Additional capital gains tax on transfer of real estate located in speculative investment areas (designated by the government)
1. Subject property: ①Capital gains earned by an individual owning 3 or more houses; or ②Capital gains tax on transfer of non-business purpose land 2. Tax rate: 6~38% plus 10% 3. Sunset on December 31, 2013 |
• Capital gains tax on multiplehome owners - 6~38% (progressive income tax rates)
• Capital gains tax on transfer of non-business purpose land - For year 2014: 6~38% - From year 2015 : 6~38% plus 10%
• Capital gains tax on transfer of short-term held property - less than 1 year : land:50%, house : 40% - 1 year ~ less than 2 years : land : 40%, house : 6~38%
• Additional capital gains tax on transfer of real estate located inspeculative investment areas (designated by the government)
1. Subject property: - Not changed
2. Tax rate: not changed 3. Deleted
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2. Inheritance and Gift Tax law (IGTL) |
■ Eased criteria for deemed gift taxation for small and medium sized corporations
In an effort to support small and medium-sized corporations (SMC) and Middle Standing Corporations (MSC), the criteria for the deemed gift taxation (for concentrating works among intra group related parties) is eased.
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Old provision |
Amended provision |
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• Criteria for deemed gift taxation
• Computation of deemed gift tax base =①Ⅹ②Ⅹ③
①After-tax operating income ②Ratio of sales torelated parties – 30% ③Controlling shareholder’s share ownership in the beneficiary company – 3% |
• Criteria for deemed gift taxation - Transactions among SMCs and MSCs shall be excluded from the related party transactions - Eased criteria for SMCMSC(*) (*) A company with revenue less than KRW 500billion
• (Ratio of sales torelated parties – 25% or 50%): - Others: 25% - SMC &MSC: 50% |
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3. Special Tax Treatment Control Law (STTCL) |
■ Increased alternative minimum tax (“AMT”) for large corporations (STTCL-Article 132)
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Old provision |
Amended provision |
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• AMT for large corporations
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• AMT for large corporations
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■ Investment tax credit rates will vary depending on size of the corporations
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Old provision |
Amended provision |
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Tax credit for investment in environment protection facilities, energy saving facilities andR&D facilities : 10%
Tax credit for investment in facilities for pharmaceutical quality control improvement : 7%
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Tax credit remain unchanged for SMCs but the rate reduced for other corporations:
- Large corporations : 3% - MSCs : 5% - SMCs : 10%
Tax credit remain unchanged for SMCs but the rate reduced for other corporations:
- Large corporations : 3% - MSCs : 5% - SMCs : 7% |