Recent Korean Tax Law Changes
l Amended Presidential Decrees of tax laws (February 29, 2024)
The amended Presidential Decrees (“PD”) of tax laws were proclaimed on February 29, 2024. There were a few changes compared to the original bill, and the major changes are as follows.
Ø Relaxation of requirements for deduction for family business succession in Special Opportunity Zones:
In the initial proposal, there were strict conditions for deduction for family business succession in a special opportunity zone: 1) the entire business operation had to be relocated to a special opportunity zone, or 2) the inheriting company had to be entirely located within a special opportunity zone to begin with.
However, the modified amendment allows for the deduction even if: 1) both the company’s headquarter and its main office are either relocated to or already situated within a special opportunity zone, or 2) at least 50% of the company’s total employees work at the premises located within the special opportunity zone.
Ø Clarification of VAT-exempt supply of personal services:
Personal services that are provided by an individual, corporation, unincorporated association or foundation, or other organization in its independent capacity, in exchange for consideration, shall be VAT-exempt. According to the initial proposal and the modified amendment, the scope of VAT-exempt personal services has been expanded and clarified.
Specifically, the following services are now included: 1) manpower supply services where an employee works for another company through a manpower supply contract; and 2) simple manpower supply services where an employee works on-site at a third-party’s business, using their equipment and facilities, performing tasks like manufacturing. However, the modified amendment excludes temporary work agency services under the Employment Agency Workers Protection Act.
This amendment applies to staffing services provided on or after January 1, 2025.
l Amended Enforcement Rule of tax laws (March 22, 2024)
The amended Enforcement Rule of tax laws which was announced on February 26, 2024, was also proclaimed on March 23, 2024. Important changes are as follows.
Ø The interest rate applied on refund of overpaid national taxes or customs duties and deemed rental income from a rental deposit on real property as well as the standard interest rate for housing rental loans is raised from 2.9% to 3.5% per annum, reflecting the recent upward trend in market interest rates.
Applicable period:
• Refund of overpaid national taxes or customs duties: from the period after the effective date (i.e., March 22, 2024)
• Deemed rental income: (Individual Income Tax Law / Value-Added Tax Law) from the taxable period to which the effective date belongs / (Corporate Income Tax Law) from the business year starting on or after January 1, 2024
• Standard interest rate for housing rental loans: Borrowing after the effective date
Ø Specification of the guideline for affixing a dedicated license plate regarding company car expenses
In case the acquisition cost of a company car registered or rented after January 1, 2024, is KRW 80 million or more, and a dedicated light green license plate is not affixed, the company car expenses shall not be deductible.
Ø Adjustment of the useful life of molds
Industry-specific standards
→ Asset-specific standards (i.e., 5 years of useful life for instruments and fixtures, etc.).
Ø Establishment of details due to the introduction of Global Anti-Base Erosion (GloBE) rules
Key terms related to the introduction of GloBE rules, including the entities subject to the rules, adjustment methods for accounting net profit or loss, and income inclusion ratio calculation methods, etc., are defined in the Amended Enforcement Rule.
l Obligation to submit transaction details for overseas stock-based compensation
We have already introduced the obligation to submit details of overseas stock-based compensation transactions in our July 2023 newsletter. As the relevant PD of the tax law was proclaimed and the relevant reporting form was released, we would like to remind you of this new obligation with supplementary explanations.
Under Article 164-5 of the Individual Income Tax Law (IITL) and Article 216-5 of the PD of IITL, domestic corporations and domestic places of business in Korea of foreign corporations shall submit transaction details related to overseas stock-based compensation1 received by employees from foreign parent companies2 by March 103 of the following year of the taxable year in which the stock-based compensation is exercised or received.
*1. Bonuses received in the form of stock options, stocks, or cash equivalent to the value of stocks
*2. Foreign parent companies who directly or indirectly own 50% or more of shares with voting rights
*3. In case of business closure or dissolution, the last day of the second month following the month in which the date of business closure or dissolution falls.
The transaction details of overseas stock-based compensation for employees stipulated under the relevant enforcement regulation of IITL (“the designated transaction details”) requires the following information:
(i) Submitters’ information
(ii)Basic information on overseas stock-based compensation
- Information on foreign parent companies granting or paying overseas stock-based compensation (i.e., company name, country, address, currency, etc.)
(iii) Details of exercise or payment of overseas stock-based compensation
- Personal information of employees concerned (i.e., name, resident registration ID number)
- Category or type (Stock/Monetary, SO/ESPP/RSU/SAR/PSU)
- Details of the grant, exercise, and payment of stock-based compensation (i.e., date, quantity exercised, exercise price, and the market price of exercising date)
- Profits arising from such exercise and payment
This provision applies to those who have exercised or received stock-based compensation on or after January 1, 2024, which will result in an obligation to submit the designated transaction details by March 10, 2025.