Korean Tax Law Changes in 2025

The government’s tax reform bill (“government bill”) was sanctioned by the National Assembly on December 10, 2024 with several modifications.

We had provided the summary of government bill in our earlier editions of Tax Newsletters in July and September 2024. Below are some major modifications compared to the original government bill for 2025. Most of the tax law changes we discussed below came into force from the fiscal year starting, or income earned, on or after January 1, 2025 unless indicated otherwise.

I. Special Tax Treatment Control Law

l Introduction of tax incentive for promoting shareholder returns à Canceled

To enhance corporate value and promote returns to shareholders, the government proposed a new tax incentive scheme for returns to shareholders, including a tax credit for companies increasing their shareholder returns and separate taxation of dividends received by individual shareholders of such companies. This proposed government bill has been cancelled.

l Expansion of tax benefits for Individual Savings Account (ISA) à Withdrawn

The proposed enhancement of tax benefits for Individual Savings Accounts (ISA), including the introduction of a new ISA category for investments in domestic shares or exchange-traded funds, has been withdrawn. The annual deposit limit remains at KRW 20 million with a cumulative cap of KRW 100 million, while the non-taxable portion remains restricted to KRW 2 million per year (or KRW 4 million for individuals with low income or income from agriculture and fisheries).

l Changes to integrated employment tax credit à Withdrawn

The proposed changes to the Integrated Employment Tax Credit have been withdrawn, thereby maintaining the existing benefits. Therefore, small and medium enterprises (SMEs) and mid-tier companies will continue to benefit from tax credits for increases in full-time employment for 3 years. Large corporations will be eligible for these tax credits for 2 years. If a company reduces its number of full-time employees within two years after the end of the fiscal year in which the credit was claimed, the credit amount shall be subject to recapture.

l Expansion of scope of rehired employees eligible for tax benefits à Withdrawn

Currently, certain preferential treatment under the integrated employment tax credit is available when companies rehire female employees who return to the workforce after leaving the company due to marriage, pregnancy, childbirth, childcare, and child education. In addition, career-interrupted female employees who are employed by SMEs receive 70% income tax reduction for three years from the date of employment. The proposed scope expansion of rehired employees eligible for tax benefits including male employees has been withdrawn.

II. Inheritance and Gift Tax Law

As the government’s proposed amendments to the Inheritance and Gift Tax Law (“IGTL”) were rejected by the National Assembly, no changes will be made to IGTL and the current regulations will remain in effect. The summary of the rejected proposals is as follows.

1. A reduction in the highest inheritance and gift tax rate from 50% to 40% for tax bases exceeding KRW 3 billion, along with an increase in the lowest tax bracket for the 10% tax rate from KRW 100 million to KRW 200 million.

2. An increase in the child tax credit for inheritance tax from the current KRW 50 million per child to KRW 500 million per child.

3. An expansion of the family business deduction for companies that improve shareholder returns, scale their operations, or establish or relocate to designated special opportunity development zones.

4. The removal of the current premium (20%) applied to the valuation of shares held by the largest shareholder.