1.

Effective Date of the Global Minimum Tax Regime is Adjusted

Under the income inclusion rule (“IIR”), top-up tax on a low-taxed constituent entity (i.e., with effective tax rate below 15%) will be imposed on the parent entity (generally, the ultimate parent entity), while the amount of top-up tax not subject to the IIR will be allocated to the jurisdiction of constituent entities of the multinational enterprise group under the undertaxed payment rule (“UTPR”). Taxation under the IIR remains unchanged and applicable to taxable years commencing on or after January 1, 2024, and the effective date of taxation under the UTPR is pushed back by a year to January 1, 2025.
 

2.

Submission Deadline for the Local File/Master File Remains Unchanged

The submission deadline for the Local File/Master File remains the same (i.e., 12 months after the taxable year-end). The tax reform proposals announced by the government on July 27, 2023 included cutting down the submission deadline to six months after the taxable year-end.
 

3.

Submission Deadlines for the Statement of International Transactions, Etc., are Unified

The “Statement of International Transactions,” “Summary Income Statement of Overseas Related Parties,” and “Report of Transfer Pricing Method” are to be submitted within six months from the end of the month in which the date of fiscal year-end falls. This revision took effect on January 1, 2024.
 

4.

Scope of National Strategic Technologies, New Growth and Original/Source Technologies is Expanded

For the national strategic technologies, a tax credit in the amount of 25 to 35% of investment in facilitates and a tax credit in the amount of 30 to 50% of R&D expenses can be claimed. For the new growth and proprietary technologies, a tax credit in the amount of 16 to 28% of investment in facilities and a tax credit in the amount of 20 to 40% of R&D expenses can be claimed.

The scope of national strategic technologies is expanded from the current six areas (semiconductors, secondary batteries, vaccines, displays, hydrogen and future means of transport), 54 technologies, and 46 facilities to seven areas (biopharmaceuticals is added to the current six areas), 62 technologies, and 50 facilities.

Supply chain-related technologies, core technologies for energy efficiency improvement and key minerals refining/smelting are added to the scope of “new growth and proprietary technologies,” which consisted of 13 fields (future cars, intelligence information, next generation software, content, electronic information devices, next generation broadcasting and communications, bio-health, energy/environment, convergence materials, robots, aviation and space, advanced materials/parts/equipment, and carbon neutrality) and 262 technologies.

As these tax law amendments were made in 2023, corporate income tax returns for 2023 should reflect these changes if applicable.
 

5.

The Application Periods of the Income Tax Reduction for Foreign Engineers and the Flat Tax Rate for Foreign Workers are Extended by Five Years

The 50% income tax reduction (for ten years) for foreign engineers/research workers is extended by five years to December 31, 2028. The scope of “foreign engineers/research workers” eligible for this tax benefit is expanded to include professors hired in promising clusters (such as special research and development zones, high-tech medical complexes, etc.).

Under the flat tax rate foreign workers regime, foreign workers may choose to have their earned income taxed under the special flat tax rate regime at the flat tax rate of 19% (20.9% inclusive of local tax) for 20 years from the date in which they start working in Korea. The application period of the flat tax rate is extended by five years. As such, foreign workers who start working in Korea by December 31, 2028 would be able to apply the flat tax rate on their “earned income” for 20 years. Furthermore, the value of company-provided housing received by such foreign workers would be permanently excluded from the scope of “earned income” subject to the flat tax rate (prior to this amendment, the exclusion of housing was temporary through December 31, 2023).
 

6.

Officers/Employees are Required to Submit the Details of Foreign Stock-based Compensation Transactions

If an officer/employee of a Korean subsidiary or a branch office of an overseas company (foreign controlling shareholder) exercises/receives stock-based compensation granted by such foreign controlling shareholder, the Korean subsidiary or branch office is required to submit detailed data on stock-based compensation transactions by March 10 of the year following the taxable period in which the date of exercise/receipt falls. This provision is applicable to stock-based compensation exercised or received on or after January 1, 2024.
 

7.

The Application Period of the Fuel Tax Refund on Compact Vehicles is Extended by Three Years

The refund of traffic/energy/environment tax and individual consumption tax (up to KRW 300,000 per year) imposed on fuel purchased for compact vehicles (less than 1,000cc, one vehicle per household) is available for three more years until December 31, 2026.
 

8.

The Seoul Administrative Court Held that the Handicapped Employment Contribution Should be Recognized as a Tax Deductible Expense

The Seoul Administrative Court recently held that the “handicapped employment contribution” should be a tax-deductible expense for corporate income tax purposes on the grounds that: (i) the handicapped employment contribution is an “inductive and adjustable (special) charge;” (ii) it is a separate obligation to pay for the purpose of achieving the policy objectives of promoting employment of disabled persons; and (iii) an unfavorable interpretation of the handicapped employment contribution as non-deductible expense under the tax laws, despite its nature as business expense, would be against the policy goals (Seoul Administrative Court Decision 2022GuHap65757, May 2, 2023).
 

9.

The Tax Tribunal Decided on Customers’ Use of Voucher Provided by Vehicle Importer/Distributor

In a Tax Tribunal case, a vehicle importer/distributor provided vouchers to customers to increase the response rate to a recall order by the Minister of the Ministry of Environment, the customers visited the dealers to receive repair services using the vouchers, and the dealers issued tax invoices to the vehicle importer/distributor for the goods or services provided to the customers. The Tax Tribunal’s decision below (Joshim 2023Gu0331, September 12, 2023; Joshim 2022Seo5253, October 4, 2023) should be taken into consideration for VAT purposes when providing benefits to customers using vouchers, etc.
 

(1)

As the party receiving services from the dealers is not the importer/distributor, the tax invoice issued by the dealers to the importer/distributor is different from the facts (i.e., false tax invoice). As such, there is no illegality to the tax authority’s assessment of penalty taxes.
 

(2)

Repair services supplied by the dealers to customers using the vouchers shall not be excluded from the VAT base of the dealers.
 

10.

The NTS Ruled on Application of Zero-rate VAT to Warranty Services Provided to Korean Customers on Behalf of an Overseas Company

The National Tax Service (“NTS”) ruled that zero-rate VAT is applicable where (i) a domestic company provided warranty repair services on behalf of an overseas company with no business place in Korea under the agreement entered into; (ii) the domestic company received from the overseas company payments in KRW through a foreign exchange bank; and (iii) the country in which the overseas company is located would provide the same VAT exemption to Korean residents/companies in a similar situation (Sajeon-2022-Beopgyubu-0936, October 4, 2022).