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news

Korean Government Measures to Support Businesses and Individuals from the Impact of COVID-19 Pandemic

5/27/2020
news

■ Korean Government Measures to Support Businesses and Individuals from the Impact of COVID-19 Pandemic

The South Korean government announced measures to support businesses and individuals from the impact of the coronavirus (COVID-19) pandemic. While the government’s package of help for businesses and individuals will evolve over time, we summarize the key elements of the current proposals of the government for your information for the time being as below.

You will find that most of the tax relief measures are for companies located in designated disaster zones (Daegu and some Northern Gyengsang province) and for small private businesses.

l Tax relief package for corporate income tax and indirect tax (VAT)

The South Korean government unveiled a package of tax relief measures for corporate income tax and indirect tax (VAT) earlier in March 2020 to help support businesses and individuals affected by COVID-19 as below.

a. Corporate Income Tax (“CIT”):

- The qualified corporations may apply for extension of CIT returns filing and CIT payments thereof as much as nine (9) months.

- Special income tax reduction rates for the qualified small and medium sized corporations located in the designated areas shall be doubled from 15%∼30% to 30%∼60%.

- Tax limitation of entertainment expenses shall be increased from 0.3%∼0.03% to 0.35%∼0.06% of revenues.

- Depending upon the given situation, a tax audit shall be stopped or postponed.

b. Indirect tax (“VAT”):

- The qualified corporations may apply for extension of quarterly VAT return filing and VAT payments thereof as much as nine (9) months.

- For the qualified small individual business with less than annual revenue of KRW 80 Million, VAT payments shall be reduced from 10% to 0.5 %∼3%.

These tax relief measures are mostly for companies located in designated disaster zones (the City of Daegu and parts of Northern Gyengsang Province) and for small private businesses.

l Coronavirus employment retention subsidy

To help businesses from the COVID-19 pandemic, the South Korean government is topping up a financial support package to encourage companies to keep hold of their employees. The extra funds amount to nearly 325 million US dollars raising the total financial support fund to be more than 405 million US dollars. The government stated that the support will be available for all industries and will be distributed between April and June 2020. It is expected that the subsidies would help companies trying to maintain their employment numbers despite the challenging economic climate. It means that, even if the businesses have to close temporarily, they will retain their workers on the books. The government stated that the applications for the subsidies have been strong across all industries. The subsidies are expected to help companies fend off bankruptcy and avoid a sharp contraction of jobs. The coronavirus impact is temporarily making manufacturing very difficult. The support will help workers sustain their wages and their spending capacity.

To encourage higher retention of employment, 67% (large sized company) or 90% (small and medium sized company) of employment suspension allowance paid shall be subsidized by the government for 3 months from April to June 2020. To qualify for this government subsidy, the employer shall submit an application together with its employment retention plan to the government, and the employer must have been enrolled at the unemployment insurance for its employees.

l Government subsidy for statutory paid leave granted to hospitalized/quarantined workers

The government subsidy for paid leave will be available to employers who have granted paid leave to hospitalized or quarantined workers in accordance with the Infectious Disease Control and Prevention Act. The amount of support is based on the daily wage of the worker (up to KRW 130,000 per day) and employers can apply for the subsidy to the National Pension Service.

l l  Reduction in statutory social insurance premiums

The South Korean government will offer reductions or exemptions on four social insurances to ease the burden for low-income households and small business owners amid the COVID-19 pandemic. The support measures were decided upon at an emergency economic meeting held on March 30, 2020. The government will reduce health insurances for 3-month period between March and May by 30 percent for those in the bottom 20 to 40 percent bracket based on the monthly health insurance payment, with each person expected to benefit Won 20,000 reduction per month in average for the business based program participants (직장가입자 in Korean) and Won 6,000 reduction per month in average for the region based program participants (지역가입자 in Korean).

The industrial accident compensation insurance paid by businesses with 30 or less employees and the self-employed will be cut by 30 percent for 6-month period from March through August 2020, which is estimated to benefit 2.6 million businesses and Won 443 billion in total.

The qualified national pension subscribers will be able to get their monthly pension contribution payments deferred for 3 months from March to May 2020 by filing an application together with the supporting documents substantiating that their income has been decreased.

Employers with 30 or less workers can get a 3-month grace period for employment and accident compensation insurance payments. The government also plans to offer discounts or temporary deferred payment of electricity fee payments for low-income families and small businesses starting from March 2020.

l Providing subsidies to eligible companies in travel industry that are affected by the COVID-19 pandemic for job security of their workers

To be qualified for this government subsidy, the affected company must have implemented employment retention measures such as cessation of business (휴업 in Korean) or leave of absence (휴직 in Korean) without reducing its number of workers. The eligible companies may receive up to KRW 1,980,000 max per month and per person (KRW 66,000 per person and per day). In addition to the implementation of employment retention measures, companies should also meet certain requirements such as 50% increase in inventory, reduction in production volume and sales decrease by 15% or more, etc.