Korean Local Tax Law Revisions for 2024

The Ministry of the Interior and Safety (MOIS) announced on August 13, 2024 the government’s Korean local tax reform bill. This will be finalized and submitted to the National Assembly in October 2024.

The local tax reform bill prioritizes four main areas: stimulating economic growth, ensuring public livelihood stability, promoting a taxpayer-friendly environment, and developing an efficient and rational taxation system.

We summarized the major proposed local tax law revisions that could be relevant to foreign-invested companies to keep you updated as below.

 

l Clarification of the scope for tax refund request due to subsequent reasons or grounds

Currently a taxpayer may file a tax refund request within 90 days from the date the taxpayer becomes aware that any of the following grounds have occurred even after the original due date for the tax refund request has expired.

1. Where the transactions or acts, etc., which formed the basis of the calculation of the tax base and tax amount in the initial return, determination, or correction, are confirmed to be different by a decision related to a request for adjudication, a claim for examination under the Board of Audit and Inspection Act, or a judgment in a lawsuit (including settlements or other actions with the same effect as a judgment).

2. Where mutual agreement under a tax treaty is contrary to the details of the initial return, determination or correction.

3. Where grounds prescribed by Presidential Decree(*) arise after the statutory deadline for reporting of the relevant local taxes expires.

(*) Grounds prescribed by Presidential Decree include:

① For the purposes of the original return, decision, or correction, where the permission or other disposition of the authorities is canceled regarding the validity of transactions or actions, etc. which served as the basis for calculation of the tax base and amount of tax.

② For the purposes of the original return, decision, or correction, where a contract is rescinded regarding the validity of transactions or actions, etc. which served as the basis for calculation of the tax base and amount of tax, due to the exercise of the rights of rescission, or is either canceled or rescinded due to a compelling ground which occurred after the conclusion of the relevant contract.

③ For the purposes of the original return, decision, or correction, where the tax base and amount of tax could not be calculated due to seizure of books, records, and documentary evidence, or other compelling ground, but the relevant ground ceases to exist later.

Under the tax reform proposal, a taxpayer may file a tax refund request due to subsequent reasons or grounds not only for self-assessed local taxes, but also for generally collected local taxes.

 

l Rationalization of the commencement date for accruing interest on local income tax refund

Currently for a tax refund request, interest on refunds begins to accrue starting from the day following 30 days after the date of filing the refund request.

Under the tax reform proposal, it is proposed that interest on refunds of local income tax paid be calculated starting from the day following the local tax payment date, regardless of whether a tax refund request has been filed.

 

l Increase in the threshold for the resident tax employee portion

Currently, a monthly resident tax employee portion is levied when the monthly average salary paid to employees exceeds the threshold of KRW 150,000,000.

Under the tax reform proposal, to alleviate the burden on small business owners, the threshold amount for exemption from the resident tax employee portion will be increased to KRW 180,000,000 by reflecting the wage growth rate.

 

l Abolition of individual income tax on financial investment income

The proposal suggests eliminating the individual local income tax on financial investment income, which is set to take effect in January 2025. This change is in line with the proposed removal of individual or corporate income tax on such income.