On July 26, 2021, the Ministry of Economy and
Finance (MOEF) of Korea announced the government tax reform proposals to be
implemented from 2022. The proposed tax law changes will be finalized after the
National Assembly passes the bill. We summarized the major proposed tax law
changes in 2022 to keep you updated as follows.
l Introduction of reporting requirements of
liaison offices of foreign corporations
Under the proposal, the liaison offices of
foreign corporations shall be required to submit certain information on the
status of the liaison office by February 10th of the following year.
The required information includes basic information of the liaison office, its
representative, information relating to its headquarter, other branches of the
foreign corporation in Korea and the list of domestic customers, etc. The
purpose is to prevent the avoidance of corporate income tax liability through
The proposed change will become effective from
the fiscal year beginning on or after January 1, 2022.
l Introduction of documentation requirement for
foreign company or non-resident providing electronic services
Under the proposal, the foreign company or
non-resident which provides electronic services to Korean customers shall be
required to maintain transaction details such as the type of services provided,
service recipients, considerations, numbers of transactions and the timing of
supplies for 5 years. In addition, if requested by the tax authorities, such
transaction details should be submitted within 60 days as from receiving the
The proposal shall apply to the electronic
services provided on or after July 1, 2022.
l Inclusion of loss making companies for transfer
pricing comparability analysis
proposal, companies that suffered losses in periods affected by COVID-19
pandemic may be included in 3rd party comparables if they satisfy
the comparability criteria. The intent of the proposal is to reflect ‘Guidance
on the transfer pricing implications of the COVID-19 pandemic’ published by the
OECD in December 2020.
The proposal shall apply to the tax base finalized
or amended on or after January 1, 2022.
l Extension of sunset period of flat income tax
rate for foreigner workers
Currently, the individual income tax
liabilities of foreigner workers (excluding daily employed workers) on
earned income from the rendering of his/her services to companies in Korea
including foreign invested companies can be finalized by
applying the 19% flat income tax rate (excluding local income tax equal to
10% of income tax) on gross earned income for the first five (5) year
period. This rule was supposed to expire at the end of 2021.
Under the proposal, this rule will be extended
to December 31, 2023.
l Introduction of tax credit limit for
voluntary tax payment through a taxpayers’ association
Class B Earned income means employment income
received from a foreigner or foreign corporation outside Korea, excluding those
claimed as a deductible expense for a Korean place of business of a
non-resident or a foreign corporation. Class B earned income can be reported by
respective employees either (1) through a Class B taxpayers’ association by the
10th day of the following month or (2) through the individual income tax return
filing by May 31 of the following year. Currently, employees can enjoy a 5% tax
credit if they voluntarily report their monthly Class B earned income through a
Under the proposal, the tax credit will be
subject to annual limit of KRW 1 million. This will be applicable to income
earned from January 1, 2022.
l Increase in low tax rate threshold for CFC
In order to prevent offshore tax avoidance,
the threshold for low tax rate for determining a CFC will be increased from the
current 15% to 70% of the Korean top marginal corporate income tax rate (25% at
The proposed amendment will apply from the tax
year commencing on or after January 1, 2022.
l Reduction of late payment interest charge
Currently, the interest charge for late
payment of taxes is 0.025% per day (9.125% per annum) of the amount unpaid or
underpaid. Under the proposal, the late payment interest charge will be
decreased to 0.019%~0.022% per day (6.94%~8.03% per annum).
This amendment will be applicable to a late
payment interest charge imposed after the enforcement date of new presidential
decree. However, former provision shall apply in the case where tax payment due
date has already passed before the enforcement date of new presidential decree.
l Temporary extension of the carryback period
for tax losses for SMEs
Currently, tax losses incurred in a current
year for SMEs can be carried back for one (1) year immediately preceding the
tax year. Under the proposal, tax losses incurred can be carried back for two (2)
years for SMEs. This temporary extension is allowed limited to the tax year ending
on or before December 31, 2021.
l Temporary increase in tax credit rate for
Under the proposal, additional 5% of tax
credit will be applied for donations made by individual taxpayers.
Current credit rate
Up to KRW 10 million
Over KRW 10 million