Proposed 2026 Korean Tax Law Revisions

The Ministry of Finance and Economy (MOFE) announced the government's 2026 tax reform bill on August 3, 2026. 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 affect foreign-invested companies, as outlined below. Unless otherwise specified, most of the revisions discussed below will take effect for fiscal years beginning on or after January 1, 2027, or for income arising on or after that date.


I. International taxation

 Reduction in the effective tax rate threshold for determining a controlled foreign company (CFC)

Under the current tax law, Korea maintains a controlled foreign company (CFC) regime, under which the undistributed earnings of a CFC established by a Korean resident in a low-tax jurisdiction are deemed to have been distributed to that Korean resident and are taxed accordingly. Among the conditions for determining whether a foreign company constitutes a CFC, the effective tax rate condition is met where the foreign company's effective tax rate does not exceed 70% of the highest marginal corporate income tax rate (i.e., 17.5%, based on the current top marginal rate of 25%).

Under the tax reform bill, the effective tax rate threshold would be lowered to 15%, in line with the global minimum tax rate. The other CFC conditions, relating to related-party status, ownership interest, and business activities, would remain unchanged.

 Clarification of the scope of administrative fines for failure to submit international transaction documentation

Under the current tax law, administrative fines for failure to comply with the documentation requirements for international transactions apply where a taxpayer fails to submit the required documentation by the statutory deadline or submits false documentation.

Under the tax reform bill, submission of documentation containing material omissions or significant errors would be explicitly treated as non-compliance subject to administrative fines.

 Introduction of the Side-by-Side Package into the domestic global minimum tax rules

Under the tax reform bill, the OECD's new administrative guidance package under the Pillar Two global minimum tax rules (the "GloBE Rules"), known as the “Side-by-Side Package,” would be incorporated into Korea's domestic global minimum tax rules through the introduction of the following four safe harbors.

① Side-by-Side (SbS) safe harbor
Where the ultimate parent entity (UPE) of a multinational enterprise (MNE) group is located in a jurisdiction with a qualified SbS regime — one with an eligible domestic tax system, an eligible worldwide tax system, and a foreign tax credit for Qualified Domestic Minimum Top-up Taxes (QDMTTs) — the top-up tax for the group's constituent entities in all jurisdictions would be deemed to be zero for purposes of the Income Inclusion Rule (IIR) and the Undertaxed Profits Rule (UTPR).

② UPE safe harbor
Where the UPE is located in a jurisdiction with a qualified UPE regime, being one with a nominal corporate income tax rate of at least 20% and a minimum tax regime ensuring an effective tax rate of at least 15%, the top-up tax for the group’s constituent entities in that jurisdiction would be deemed to be zero for UTPR purposes.

③ Substance-based tax incentive (SBTI) safe harbor
Where an MNE group uses qualified SBTIs — tax benefits calculated by reference to eligible expenditures or production, such as tax credits based on a specified percentage of eligible R&D expenditures or tangible asset acquisition costs — the top-up tax or domestic minimum top-up tax (DMTT) payable in the jurisdiction would be reduced through an increase in adjusted covered taxes, subject to a substance cap of 5.5% of the greater of eligible payroll costs or eligible depreciation expenses on eligible tangible assets (or, where a five-year election is made for the jurisdiction, 1% of the book value of eligible tangible assets).

④ Simplified effective tax rate (ETR) safe harbor
Where an MNE group had no top-up tax or DMTT liability for a jurisdiction in any fiscal year beginning within the preceding 24 months, it would be permitted to compute a simplified ETR using simplified income and taxes. The top-up tax would be deemed to be zero where the simplified ETR is at least 15% or the jurisdiction has a simplified loss.

The SbS, UPE, and SBTI safe harbors would apply to fiscal years beginning on or after January 1, 2026 (for jurisdictions recognized as qualified SbS jurisdictions on or after January 1, 2026, the SbS safe harbor would apply from the fiscal year following the year of recognition), and the simplified ETR safe harbor would apply to fiscal years beginning on or after December 31, 2026. The proposed rules would apply to GloBE Information Return or top-up tax return filings made on or after January 1, 2027.

 Foreign tax credit on the qualified domestic minimum top-up tax (QDMTT)

A QDMTT is a tax imposed by a jurisdiction on the undertaxed profits of constituent entities of an MNE group located in that jurisdiction where those entities are subject to an effective tax rate below the 15% minimum rate under the GloBE Rules.

Under the tax reform bill, reflecting the OECD's administrative guidance on the global minimum tax, the QDMTT would be explicitly added to the list of creditable foreign taxes.

 Increase in the ceiling on administrative fines for failure to report foreign trusts

Under the current tax law, failure to report foreign trusts, or the submission of false information, is subject to an administrative fine of 10% of the value of the unreported or underreported foreign trust assets, capped at KRW 100 million.

Under the tax reform bill, the ceiling on the administrative fine would be increased from KRW 100 million to KRW 1 billion.

II. Corporate and individual income taxation

 Increase in the threshold for entertainment expenses deductible without qualifying documentation

Under the current tax law, entertainment expenses may be deducted without qualifying documentation, such as a credit card sales slip, cash receipt, or value-added tax invoice, only where the amount does not exceed KRW 30,000 per transaction (KRW 200,000 per transaction for congratulatory or condolence payments).

Under the tax reform bill, the threshold would be increased to KRW 50,000 per transaction (KRW 300,000 per transaction for congratulatory or condolence payments).

 Reduction in the withholding tax rate on personal service business income

Under the current tax law, business income arising from the supply of services in an independent capacity without physical facilities (referred to as "personal service business income") is subject to withholding tax at a rate of 3.3% (including local income tax), with the income subsequently reported through the recipient's global income tax return.

Under the tax reform bill, the withholding tax rate applicable to personal service business income that is subject to global income tax filing would be reduced from 3.3% to 2.2% (including local income tax).

 Increase in the flat tax rate for foreign employees under the special tax regime

Under the current tax law, eligible foreign employees may elect to apply a flat tax rate of 19% (20.9% including local income tax), without the benefit of any exemptions, deductions, or tax credits, in lieu of the progressive global income tax rates ranging from 6% to 45% (6.6% to 49.5% including local income tax), for a period of 20 years from the first day of employment in Korea.

Under the tax reform bill, the flat tax rate would be increased from 19% to 21% (23.1% including local income tax).

In addition, the application period of the special tax regime would be extended by 3 years, from December 31, 2026 to December 31, 2029.

 Exclusion of large companies from the integrated employment tax credit

Under the current tax law, where the number of employees increases compared to the preceding year, a tax credit is available in an amount calculated by multiplying the increase in the number of full-time employees by the prescribed credit amount per employee. The credit amount per employee varies depending on the size of the enterprise (large, mid-sized, or small and medium-sized enterprise) and the location of the business (the Seoul metropolitan area or non-metropolitan areas).

Under the tax reform bill, large companies would be excluded from the scope of the integrated employment tax credit. For reference, a Korean subsidiary is classified as a large company where its foreign parent group is the largest shareholder holding 30% or more of its equity and the group's worldwide consolidated assets exceed KRW 10 trillion (approximately USD 7 billion).

III. Tax administration

 Expanded reduction of non-filing / late-filing penalties for returns filed shortly after the due date

Under the current tax law, the non-filing / late-filing penalty is 20% of the amount of tax payable, and a 50% reduction of the penalty is available where the return is filed after the due date but within one month of that date.

Under the tax reform bill, the reduction rate would be increased to 75% where the return is filed within one week from the due date.

 Lowered threshold for public disclosure of foreign financial account reporting violators

Under the current tax law, where a person fails to report, or underreports, foreign financial account information in an amount exceeding KRW 5 billion, the tax authorities may publicly disclose that person's personal information.

Under the tax reform bill, the threshold for such public disclosure would be lowered from KRW 5 billion to KRW 3 billion.