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Newsletter | May 2014, Issue 2 |
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TAX |
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Changes to Presidential Decrees of Tax Laws for 2014 |
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The Government amended the Presidential Decrees and the Ministerial Decrees of various tax laws on February 21, 2014 and March 14, 2014, respectively. Some examples of the amended Presidential Decrees and Ministerial Decrees are discussed below. |
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Exchange Rates Applicable for Valuation of Foreign Currency-Denominated Assets and Liabilities |
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Corporations, other than financial institutions, can choose to elect either (i) the standard exchange rate as of date of acquisition or occurrence or (ii) the standard exchange rate as of the end of the fiscal year as the exchange rate to be applied on the valuation of foreign currency-denominated assets and liabilities. Corporations were originally prohibited from changing their elected exchange rates; however, a recent amendment to the Presidential Decree of the Corporate Income Tax Law now allows corporations to change their election method every 5 years. |
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Clarification on Independent Business Unit for Qualified Tax-Free Spin-Off |
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One of the requirements for a qualified tax-free demerger (spin-off) is that the spin-off must comprise an independent business unit. Amendments to the Presidential Decree and the Ministerial Decree of the Corporate Income Tax provide that a spin-off of a business unit consisting only of certain shares and assets and liabilities related to such shares will not be regarded as a qualified tax-free spin-off of an independent business unit. Exceptions to this rule are: (i) a spin-off of all stocks held for 3 years or more by the majority shareholder and (ii) an establishment of a holding company via a spin-off will be regarded as spin-off of an independent business unit. |
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Dividend from Capital Reduction Excluded from Dividend Income |
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As dividends received through reduction of capital are generally treated the same as the return of capital to the shareholders, such dividends will not be regarded as dividend income under the amendments to the Presidential Decree of the Personal Income Tax Law. |
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Tax Benefit for Medium Sized Enterprises |
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Previously, only small sized enterprises were able to enjoy special tax credit rates which they can apply to reduce their taxable income. However, according to the amendments to the Presidential Decree of the Tax Incentives Limitation Law, special tax credit rates are now also available to medium sized enterprises for calculating tax credits such as R&D tax credit. |
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