Proposed Korean Tax Law Revisions for 2023
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.
I. Corporate Income Tax
l Expanded scope of national strategic technologies and new growth and source technologies1
|
Item |
Current |
Proposed |
|
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’.
However, expenses incurred in consumptive service businesses such as general bars will not be applicable.
II. International Tax
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 eligible industries.
l Temporary increase in the deduction rate for credit card spending at traditional markets and cultural expenses
|
Deduction rate (%) |
Current |
Proposed |
|
Traditional markets |
40 |
40 |
|
Book purchases, performances, art museum and theater expenses |
30 |
30 |
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 of stocks.
V. Others
l Expanded reduction in underreporting penalty in amended customs returns
|
Reduction rate (%) |
Current |
Proposed |
|
Within
6 months |
20 |
30 |
|
6 months to 1 year |
10 |
20 |
|
1 year to 1 year 6 months |
10 |
10 |
l Expanded tax benefits for investment in video contents
The tax credit rate for video contents production cost will increase as below.
|
Tax credit rate (%) |
Current |
Proposed |
||
|
Increase in standard tax credit(①) |
Establishment of additional tax credit3(②) |
Maximum tax credit(①+②) |
||
|
Large Company |
3 |
5 |
10 |
15 |
|
Medium-scaled |
7 |
10 |
10 |
20 |
|
SMEs |
10 |
15 |
15 |
30 |
*3. Application to contents with more than a certain percentage of domestic production costs.