On July 22, 2020,
the Ministry of Economy and Finance (MOEF) of Korea announced the government
tax reform proposals to be implemented from 2021. The proposed tax law changes
will be finalized after the National Assembly passes the bill. We summarized
the major proposed tax law changes in 2021 to keep you updated as follows.
l Extension of the carryforward period for tax
Currently, tax losses incurred in a current
year can be carried forward for the next 10 years. Under the proposal, the
period for tax loss carryforward would be extended from the current 10 years to
15 years in order to relieve the tax burden of taxpayers including
foreign-invested companies and support businesses that suffered from COVID 19
The proposed change would apply to tax losses
reported on or after January 1, 2021.
l Elimination of the expense deduction method
for indirect foreign tax
Currently, a domestic company including a
foreign-invested company is entitled to choose either the tax credit method or
the expense deduction method for the foreign taxes paid indirectly by its
Under the proposal, the expense deduction
method will not be allowed and only the tax credit method can be chosen.
The proposed change would be effective from
the year beginning on or after January 1, 2021.
l Expansion of the circumstances under
which an amended import VAT invoice can be issued
Currently, an amended import VAT invoice
cannot be issued in the case where an importer files an amended import
declaration knowing in advance that the tax base or the amount of customs duty
will be determined or rectified by the head of a customs office.
Under the proposal, an amended VAT invoice can
be issued even though an importer files an amended import declaration knowing
that there will be determination and rectification of tax base or the amount of
This proposal will be effective for the
amended tax returns to be filed on or after January 1, 2021.
l Expansion of the scope of supply of
goods that are exempted from VAT
Currently, the gifts provided to employees
were exempted from VAT up to a value of KRW 100,000 per year. Under the
amendment, the KRW 100,000 limitation applies per event (i.e., New Year’s Day
(“Seol-Nal”), Thanksgiving Day (“Chuseok”) and other personal events).
l Changes in the individual income tax
exemption for foreign engineers
Currently, qualified foreign engineers are
entitled to 50% exemption in income tax on the employment income for 5 years
(in the case where the engineers work in companies in materials, parts and
equipment sectors, 70% exemption for the first 3 years and 50% exemption for
the next 2 years). Under the proposal, while the qualification of foreign
engineers will be strengthened, the scope of qualified R&D facilities will
Under the proposal, qualified foreign
engineers should have 1) a bachelor’s degree in science or engineering with
R&D work experience of at least 5 years or 2) a Ph.D. degree in science or
engineering with R&D work experience of at least 2 years. Meanwhile, under
the proposal, the scope of qualified R&D facilities will be expanded to
include corporate research institutes or R&D department and
government-funded R&D facilities or university-affiliated research
The proposed change shall apply to the employment
agreements executed from the year beginning on or after January 1, 2021.