Proposed Korean Tax Law Revision for 2026
The Ministry of Economy and Finance (MOEF) announced the government’s Korean tax reform bill on July 31, 2025. The proposed revisions will undergo further discussion and require approval from the National Assembly before they can be finalized.
We have summarized the major proposed tax law revisions that may apply to foreign-invested companies to keep you informed, as outlined below. Most of these tax law revisions we discussed below will take effect for fiscal years beginning on or after January 1, 2026, or for income earned on or after that date, unless otherwise specified.
I. Corporate Income Tax Law (CITL)
l Adjustment of corporate income tax rates
The tax reform bill proposes a one-percentage-point increase in the marginal tax rate across all corporate income tax brackets, restoring the rates to the levels that were in effect before the 2023 reduction.
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Current |
Proposed |
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l New filing obligation for application for entitlement to reduced withholding tax rates
Under current tax law, to apply a reduced withholding tax rate under an applicable tax treaty, the withholding agent must obtain an Application for Entitlement to Reduced Tax Rate from the non-resident or foreign corporation before the income payment date. The agent is required to retain this application for five years from the statutory withholding tax payment deadline (i.e., the 10th day of the month following the payment date).
Under the tax reform bill, withholding agents are also required to submit the received application and its supporting documentation to the Korean tax authorities by the end of February of the year following the payment year.
l New penalty introduced for failure to file liaison or representative office status reports
A foreign corporation operating a liaison or representative office in Korea is required to submit a Report on the Status of a Foreign Liaison or Representative Office in Korea—which includes basic information about the office, its representative, the head office, Korean customers of the head office, and any other branches in Korea—by February 10th of the following year.
Under the tax reform bill, failure to submit this report or submission of false information may result in an administrative fine of up to KRW 10 million.
l Deferral of monthly filing requirement for simplified withholding tax statements for wage and salary income until January 2027
Under the current tax law, the filing frequency for simplified withholding tax statements on salary and wage income is set to change from bi-annual to monthly starting in January 2026, after a two-year grace period.
However, the tax reform bill proposes deferring implementation by an additional year—until January 2027—to align with the planned introduction of income-based employment insurance.
II. Individual Income Tax Law (IITL)
l Adjustment of the capital gains tax threshold on listed stocks
Under the tax reform bill, the threshold for capital gains taxation on listed shares will be lowered from KRW 5 billion to KRW 1 billion per issue of stock.
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Category (per item) |
KOSPI |
KOSDAQ |
KONEX |
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Ownership percentage |
1% |
2% |
4% |
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Holding amount |
(Current) KRW 5 billion -> (Proposed) KRW 1 billion |
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The revised threshold will apply to transfers made on or after the effective date of the amended Enforcement Decree.
l Increase in exemption limit of childcare allowance based on number of children
Under the current tax law, the exemption limit for the childcare allowance received from an employer for the care of a child under six years of age is up to KRW 200,000 per month, regardless of the number of children.
Under the tax reform bill, the monthly tax-exempt limit will be increased to KRW 200,000 per child, effectively increasing the exemption limit for families with multiple young children.
III. Special Tax Treatment Control Law (STTCL)
l Reform of the integrated employment tax credit schemes
Under the tax reform bill, the integrated employment tax credit schemes will be revised as follows:
(Credit Structure) The existing claw-back mechanism, which fully recaptures tax credits if employment declines, will be replaced with a redesigned structure that offers enhanced tax credits in the second and third years, provided employment levels are maintained.
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Category |
Tax credit per increased employee (*2) (in KRW million) |
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SMEs |
Middle-scale company |
Large |
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Metropolitan area |
Non-metropolitan area |
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Preferential credit amount (*1) |
14.5 (for 3 years) → |
15.5 (for 3 years) → 10 + 19 + 20 |
8 (for 3 years) → 5 + 9 + 9 |
4 (for 2 years) → 3 + 5 |
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Basic credit amount |
8.5 (for 3 years) → |
9.5 (for 3 years) → 7 + 12 + 13 |
4.5 (for 3 years) → 3 + 5 + 5 |
n/a |
(*1) Youth aged 15 to 34, persons with disabilities, individuals aged over 60 years old, and those rehired after parental leave, among others.
(*2) For middle-scale and large companies, the credit will be calculated based on the number of new hires exceeding the minimum employment increase threshold.
(Eligibility Requirements) Middle-scale and large companies will qualify for the credit only if they meet the minimum employment increase threshold:
– Middle-scale companies: at least 5 new hires
– Large companies: at least 10 new hires
(Post-Compliance
Monitoring) If part of the newly
increased workforce is reduced after claiming the credit, the tax credit
related to the retained employees will remain intact.
Under current tax law, any reduction in employment triggers full recapture of
the credit related to the reduced headcount and disqualifies the company from
claiming the credit in the year of reduction.
(Additional Credit) The additional tax credit for employees returning from parental leave will be extended by one year, until December 31, 2026.
– KRW 9 million per returning employee for
middle-scale companies
– KRW 13 million per returning employee for small and medium-sized enterprises
(SMEs)
l Introduction of separate taxation on dividend Income from high-dividend-paying listed companies
Under the tax reform bill, dividend income received by Korean residents from high-dividend-paying listed companies (*1) will be excluded from comprehensive income taxation (which is currently subject to progressive tax rates ranging from 14% to 45%) and will instead be subject to separate taxation.
(*1) Public and private funds, REITs, and special purpose companies (SPCs) are excluded from this measure.
This measure will apply to dividends attributable to the fiscal years 2026 through 2028.
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Eligibility Requirements |
l The company’s cash dividend amount must not be lower than that of the previous year, and l
Either of the following dividend payout conditions must be met: |
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Applicable Income |
Cash dividends, including interim, quarterly, and year-end dividends |
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Applicable |
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l Increase in basic income deduction limit for credit card spending based on number of children
Under the proposed tax reform, the basic income deduction limit for personal credit card usage and similar expenditures will be increased based on the number of dependent children, as below.
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Annual salary |
Current (Regardless of the number of children |
Proposed |
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No children |
1 child |
2 or more children |
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Up to KRW 70 million |
KRW 3 million |
KRW 3 million |
KRW 3.5 million |
KRW 4 million |
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Over KRW 70 million |
KRW 2.5 million |
KRW 2.5 million |
KRW 2.75 million |
KRW 3 million |
IV. Others
l Adjustment of security transaction tax(STT) rates
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KOSPI |
KOSDAQ |
K-OTC |
KONEX |
Non-listed |
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Tax rate |
0.15%* |
0.15% |
0.15% |
0.1% |
0.35% |
(*) An additional 0.15% Agricultural and Fishery Special Tax, applicable to KOSPI-listed stock transfers, is included.
The revised STT rate will apply to transfers made on or after the effective date of the amended Enforcement Decree.
l Additional documentation required for amended tax returns due to TP adjustments
Under the tax reform bill, taxpayers filing an amended tax return to request a refund based on arm’s length price adjustments must submit additional documentation to demonstrate the occurrence of double taxation.