The Ministry of the
Interior and Safety (MOIS) announced on August 17, 2023 the government’s Korean
local tax reform bill. This will be finalized and submitted to the National
Assembly in October 2023.
This local tax
reform bill focused on supporting the stability of local businesses and
residents’ lives to promote a virtuous cycle of economic growth and tax revenue
under these challenging conditions. It also actively incorporates the creation
of a taxpayer-friendly environment, such as strengthening taxpayer rights and
improving convenience in tax payments.
We summarized the major proposed local tax law
revisions that could be applicable to foreign-invested companies to keep you
updated as below.
l Introduced installment payment of local income tax
Payment of company’s local
on an installment is not allowed.
lump-sum payment within the due date)
a tax due exceeds KRW 1 million, payment on an installment is allowed
within one month (*).
The payment due date in an installment for SMEs shall be extended to two
(Effective date) Applicable from the business year starting on or after
January 1, 2023.
l Reduced non-reporting penalty on local income
tax of corporations in case of reporting error in allocation by workplace
If a corporation with
workplaces in multiple local governments files a local income tax return with
only one local government without allocation by workplaces, a non-reporting
penalty of 20% of the tax due shall be imposed.
A non-reporting penalty will
be reduced from 20% to 10% of the tax due.
l Expanded secondary tax liability of foreign
Secondary tax liability of a
corporation when its investor defaults on tax payment
an investor fails to pay its tax liabilities due to a local government by the
payment due date, the corporation shall bear the secondary tax liability up
to the value of stocks or investment shares held by such investor.
applies only in the following cases:
there are no prospective buyers for the stocks or investment shares held by an
investor when a local government
intends to sell them through public auction or under a negotiated contract.
any Act or the articles of incorporation of such corporation restricts
transfer of stocks or investment shares held by an investor.
Expanded requirements for
the secondary tax liability of a corporation when its investors defaults on
third case is added to the existing 2 cases:
a compulsory collection by the local government under the Local Tax
Collection is restricted in the case where a corporation invested in by an
investor is a foreign corporation and the investor's shares in the foreign
corporation are regarded as assets located in foreign country.
(Effective date) Applicable in cases where an investor’s tax obligation
is established after this Act enters into force.