The Ministry of
Economy and Finance (MOEF) announced the government’s Korean tax reform bill on
July 27, 2023
This tax reform
bill aims to enhance government support in 1) promoting investment, employment,
and domestic consumption as well as boosting venture and startup activities to
revitalize the private-sector-driven economy; 2) reducing the living costs for low-and-middle-income
households and providing support for small business owners and SMEs to aid in the
recovery of public economy, 3) strengthening ability to respond to demographic
and regional crises through tax incentives for marriage, childbirth, childcare,
and retirement preparation as well as supporting Opportunity Development
Zone(ODZ); and 4) creating a taxpayer-friendly environment with prompt dispute
resolution and improving equity in taxation.
We summarize the major proposed tax law
revisions which could be applicable to foreign-invested companies to keep you
updated as below. Most of the tax law revisions we discuss below will come into
force from the fiscal year starting, or income earned, on or after January 1, 2024 unless indicated otherwise.
l Expanded scope of national strategic technologies
and new growth and source technologies1
National Strategic Technologies
6 fields including semiconductors,
batteries, vaccines, displays, hydrogen, future mobility
Addition of biopharmaceuticals
(effective for expenses incurred after
July 1, 2023)
New Growth and Source Technologies
13 fields including future cars
Addition of key technologies for improving
energy efficiency, core mineral processing, and essential supply management technologies
*1. Applicable to
higher tax credit rates compared to general R&D expenses or investments.
l Expanded deduction limit for corporate business promotion expenses (previously known as ‘entertainment expenses’) spent in traditional markets
The deductible limit for corporate business
promotion expenses spent in traditional markets will be increased by an
additional 10% of the ‘standard limit + limit base on revenue amount’.
expenses incurred in consumptive service businesses such as general bars will
not be applicable.
l Change in the due date of filing claims for rectifications
of non-taxation, tax exemption, or application of reduced tax rate under tax treaties
The due date of filing claims for
rectifications of non-taxable, tax-exemption, or application of reduced tax
rate under tax treaties will be changed from within 5 years from the last day
of the month in which the date of withholding falls to within 5 years from
the 10th day of the following month in which the date of withholding falls.
l Shortened submission deadline for master file
and local file
The deadline for submission of master file and
local file will be shortened from within 12 months after the end of the fiscal year
to within 6 months after the end of the fiscal year
Even large corporations that submit a statement
of international transactions, etc. as attachments to a local file shall
separately submit a statement of international transactions, etc.
III. Value-Added Tax
l Introduction of additional tax on
non-registration for foreign electronic service providers
Under the current Value-Added Tax Law(VATL) in
Korea, foreign entrepreneurs who provide electronic services to consumers in
Korea (excluding cases where services are provided for the taxable business or
tax-exempted business of a person whose business has been registered) shall register
their business using simplified business registration within 20 days after the
commencement date of the business.
Under the proposed revision of VATL, If they
fail to apply for simplified business registration, the tax authorities may
register them ex officio and impose an additional tax equivalent to 1% of
the supply value during the unregistered period.
IV. Individual Income Tax
l Extension of the applicable period of the flat income tax rate
(19%) for foreign workers
The applicable period shall be extended to December 31, 2028.
The provision that grants tax exemption for benefits derived
from providing company-provided housing for foreign workers eligible for the
special flat tax rate will continue to be valid.
l Extension of the applicable period of income tax reduction or
exemption for employees of SMEs
The applicable period shall be extended to December 31, 2026.
Computer academies and similar institutions are added to the
l Temporary increase in the deduction rate for credit card
spending at traditional markets and cultural expenses
Deduction rate (%)
(50% for amounts spent during April 1, 2023. ~ December 31, 2023)
performances, art museum and theater expenses
(40% for amounts spent during April 1, 2023. ~ December 31, 2023)
l Introduction of obligation to submit
transaction records for overseas stock-based compensation2
Establishment of the obligation for employers
to submit transaction records related to overseas stock-based compensation.
Domestic corporations and domestic place of
business in Korea of foreign corporations shall submit transaction records
related to overseas stock-based compensation received by employees from foreign
parent companies by March 10 of the following year of the taxable period in
which the stock-based compensation is exercised or received.
*2. Stock-based compensation: Bonuses
received in the form of stock options, stocks, or cash equivalent to the value
l Expanded reduction
in underreporting penalty in amended customs returns
Reduction rate (%)
after the revision period
months to 1 year
to 1 year 6 months
tax benefits for investment in video contents
The tax credit rate for video contents production
cost will increase as below.
Tax credit rate (%)
Increase in standard tax credit(①)
Establishment of additional tax credit3(②)
Maximum tax credit(①+②)
*3. Application to contents with more than a certain
percentage of domestic production costs.