Proposed South Korean Tax Law Changes in 2022


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 liaison offices.

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 request.

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

Under the 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 taxpayers’ association.

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 rule

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 present).

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 donation

Under the proposal, additional 5% of tax credit will be applied for donations made by individual taxpayers.

Current credit rate

Proposed credit rate

Up to KRW 10 million


Up to KRW 10 million


Over KRW 10 million


Over KRW 10 million