Korean Tax Law Changes in 2026

The government’s tax reform bill (“government bill”) was sanctioned by the National Assembly on December 2, 2025 with several modifications.

We had provided the summary of government bill in our earlier editions of Tax Newsletters in July and September 2025. Below are some major modifications compared to the original government bill for 2026. 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, 2026 unless indicated otherwise.

I. Value-Added Tax Law

l Increase in the penalty rate for issuance or receipt of fictitious VAT invoices

Currently, where a fictitious VAT invoice is issued or received, a penalty equivalent to 3% of the taxable supply amount indicated on the VAT invoice is imposed. This penalty rate will be increased to 4%.

l New requirement to submit supporting documents demonstrating substantive business pperations

Currently, tax authorities may require taxpayers to submit account books, documents, or other relevant materials for VAT investigation purposes. The amended provision clarifies that taxpayers may also be required to submit supporting documents evidencing the substantive status of their business operations.

II. National Tax Collection Law

l Deferral of the implementation of the entrusted sale of virtual assets

The Government’s original proposal provided that sale of seized virtual assets would be entrusted to Korea Asset Management Corporation (KAMCO) from July 1, 2026. However, the approved amendment defers the effective date by three months to October 1, 2026 in order to secure sufficient preparation time for KAMCO.

III. Special Tax Treatment Control Law

l Changes to separate taxation on dividend income from high-dividend companies

Regarding the separate taxation on dividend income from high-dividend companies, the following changes have been made between the originally proposed government bill and the revised version passed by the National Assembly.

l Introduction of a special tax exemption for the youth future savings plan

While this measure was not part of the original government proposal, the revised and finalized bill newly introduces a tax exemption regime to support asset formation by young people.

l Expansion of non-recovery grounds for tax-exempt interest on the youth take-off savings

Under the current law, if a Youth Take-off Savings account is terminated within three years from the contract date, any tax benefits previously granted are recaptured. However, tax will not be recaptured in the case of unavoidable circumstances, such as death, emigration abroad, marriage, or childbirth.

Under the revised and finalized amendment, an additional non-recovery ground has been introduced. Specifically, where the account is terminated early in order to join the Youth Future Savings plan, and the prescribed requirements under the Presidential Decree are satisfied, the previously exempted tax will not be collected.

l Expansion of tax reduction limits for companies in special research and development zones

Under the current law, high-tech enterprises and research institute spin-off companies located in Special Research and Development Zones (“R&D Special Zones”) are eligible for corporate/income tax reductions of 100% for the first three years and 50% for the subsequent two years. The ceiling on the tax reduction is calculated as 50% of the accumulated investment amount plus KRW 15 million per full-time employee, with an increased amount of KRW 20 million applied to youth employees and full-time employees at business establishments engaged in designated service sectors.

Under the revised and finalized amendment, this ceiling has been further expanded. In addition to youth employees and service sector employees, full-time employees who qualify as highly skilled R&D personnel as stipulated in the Presidential Decree will also be eligible for the higher KRW 20 million amount. All other requirements remain unchanged. The amendment applies to fiscal years beginning on or after January 1, 2026.

IV. IV. Act on Special Rural Development Tax

l Addition of the youth future savings plan to the items exempt from the special tax for rural development

Under the current system, where interest or dividend income is granted an income tax reduction under the Special Tax Treatment Control Law, 10% of the reduced tax amount is generally levied as the Special Tax for Rural Development. However, certain savings products are exempt from this special tax.

Under the revised and finalized amendment, the Youth Future Savings Plan is newly added to the list of savings products exempt from the Special Tax for Rural Development, thereby further supporting asset building for young people.