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Newsletter | February 2014, Issue 1
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TAX |
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Final Tax Law Changes for Year 2014 |
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On January 1, 2014, the National Assembly finally passed the tax law amendment for 2014. In doing so, the original proposal was amended by the National Assembly with the passage of new legislation not part of the original package and exclusion of others from the new tax laws. The main highlights of the tax law amendment are as follows. |
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Increase in the Minimum Corporate Income Tax Rate for Large Companies |
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Even if corporate income tax payable is nil after taking tax credits and exemptions, companies are still subject to a minimum corporate income tax (“Minimum CIT”). The new tax law increases the applicable Minimum CIT rate for one of the taxable income brackets. Specifically, for large companies that have taxable income exceeding KRW 100 billion before tax credits and exemptions, the previous Minimum CIT rate of 17.6% (including local income tax) will increase to 18.7% (including local income tax) under the new tax law. The applicable Minimum CIT rates for other taxable income brackets will remain unchanged. Please see the table below for a comparison of the Minimum CIT rates before and after the revision to the tax law. |
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(Unit: KRW) |
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| Taxable Income |
Minimum CIT Rate |
| Before Amendment |
After Amendment |
| Below 10 billion |
11.0% |
11.0% |
| 10 billion ~ 100 billion |
13.2% |
13.2% |
| Above 100 billion |
17.6% |
18.7% |
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＊Local income tax is included. |
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Foreign Employee Subject to 18.7% Flat Tax Rate |
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The original proposed tax law amendment would have applied a 18.7% flat income tax rate (including local income tax) on earned income of foreign employees for the first five years of their employment in Korea. In case a foreign employee began his/her work 5 years before January 1, 2014, the flat income tax rate would not have been applicable for 2014. In addition, the original proposed tax law amendment also provided an exception to the application of the flat tax rate for certain foreign employees who exercise control (either directly or indirectly) over the management of a Korean entity. |
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However, unlike the original proposal, the new tax law continues to apply the flat income tax rate to foreign employees who have worked for 5 years in Korea prior to January 1, 2014. Moreover, under the new tax law, the flat income tax rate would also be applicable to a foreign employee working in a company subject to foreign investment tax exemption even though he/she exercises control of the management of such company. |
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Limitation on R&D Tax Credit for Large Companies |
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Limitation of R&D tax credit available to large companies (excluding middle and small-sized companies) will be reduced from 6% to 4%. |
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Reduction on Capital Gains Tax for Sale of Land and Residential Real Estate Property |
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Prior to the amendments, capital gains tax was levied at the rate of 33%, in addition to corporate income tax, when companies sold land not related to its business and residential real estate property. Under the new tax law, capital gains tax rate on such sale will be reduced to 11%. |
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