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Newsletter | April 2017, Issue 1
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INTELLECTUAL PROPERTY
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Income Tax Law Amended, Setting Clear Non-Tax Limits for Employee-Inventor Remuneration
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On December 20, 2016, the Income Tax Law was newly amended. On February 3, 2017, its Presidential Decree was also amended to set clear guidelines for the tax treatment of employee-inventor remuneration, and to define the scope of non-taxation. This amendment applies retroactively to any and all in-service invention remunerations paid since January 1, 2017.
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Summary:
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Paid DURING Employment
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Paid AFTER Termination of Employment
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| Earned income; |
| Non-taxable up to KRW 3 million per year |
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| Other income; |
| Non-taxable up to KRW 3 million per year |
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Key Aspects of the Changes:
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The newly amended Income Tax Law now classifies in-service invention remunerations paid to an inventor-employee under the Invention Promotion Act (“IPA”) according to whether it was paid during or after the term of employment.
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Remuneration paid during the term of employment is now treated as earned income, while remuneration paid after the term of employment is other income. The Presidential Decree sets a limit for either type of income that may be treated as non-taxable in the amount of KRW 3 million per year.
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Background:
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Under the old Income Tax Law, in-service invention remuneration paid to an inventor-employee in accordance with the IPA was theoretically treated as non-taxable other income to the employee. Initially, however, the Korean tax authorities narrowly interpreted this provision to cover only remuneration paid specifically for patent registration, while treating other related remuneration (e.g., for patent filing, or the use, sale and licensing of the invention) as taxable income.
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It was only after the Supreme Court's decisions1 – holding that all in-service invention remuneration (including remuneration for reservation of patent filing) was non-taxable – that the tax authorities changed their practice to exempt all remunerations paid pursuant to the IPA as non-taxable other income.
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Supreme Court Decision 2014Du15559, April 23, 2015; and Supreme Court Decision 2014Du15542, April 9, 2015
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