Korean Local Tax Law Revisions for 2023
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 for corporations
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Current |
Proposed |
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Payment of company’s local income tax - Payment on an installment is not allowed. (Full lump-sum payment within the due date) |
Payment of company’s local income tax - If 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 months. |
(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
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Current |
Proposed |
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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.
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(Effective date) Applicable from the business year starting on or after January 1, 2023.
l Expanded secondary tax liability of foreign corporations
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Current |
Proposed |
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Secondary tax liability of a corporation when its investor defaults on tax payment
- Where 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.
- This applies only in the following cases: 1. If 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. 2. If 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 tax payment
- Same as left
- The third case is added to the existing 2 cases: 1. Same as left
2. Same as left
3. If 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.