On July 25, 2024, the Ministry of Economy and Finance (the “MOEF”) released its “2024 Proposed Tax Law Amendments” (the “Proposed Amendment”). Outlined below is a summary of parts of the Proposed Amendment that may be relevant for overseas companies, foreign invested companies established in Korea, non-resident individuals, Korean companies and/or resident individuals engaged in cross-border transactions.
The timeline of the Proposed Amendment is as follows:
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July 26 – August 9, 2024: Public comment period of 14 days
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August 27, 2024: Approved by the Cabinet
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September 2, 2024: Submitted to the National Assembly
The Proposed Amendment may undergo changes during the National Assembly’s review process. Once finalized and ratified by the National Assembly, which is anticipated to occur in December 2024, the majority of the Proposed Amendment will come into effect on January 1, 2025.
Notable items of the Proposed Amendment are as follows.
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1.
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Tax on Corporate Income and Shareholders
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(1)
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Abolishment of Valuation Premium for Shares Held by the Largest Shareholder
The 20% premium applicable in the valuation of shares held by the largest shareholder is abolished to facilitate corporate succession. This premium also applies to share transfers by the largest shareholders, and will be applicable to shares inherited or gifted on or after January 1, 2025.
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(2)
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Upward Adjustment of the Deduction Rate for Increase in Investment Eligible for Consolidated Investment Tax Credit
The deduction rate for the increase in investments eligible for the consolidated investment tax credit (i.e., investment in the relevant year in excess of the annual average investment for the immediately preceding three years) will be raised. The new rates will be (i) 10% (increased from 4%) for national strategic technologies, and (ii) 10% (up from 3%) for general or new growth/original technologies. This adjustment is applicable to investments made in the taxable years beginning on or after January 1, 2025.
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(1)
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Introduction of Obligation to Submit the Application for Non-Taxation/Exemption and Statement of Withholding Tax Payment on Korean-Source Personal Service Income
Under the current law, there is no requirement to submit the Application for Non-Taxation/Exemption and Statement of Withholding Tax Payment with respect to Korean-source personal service income. The Proposed Amendment introduces this requirement, applicable to payments made on or after January 1, 2026.
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(2)
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Reduction of Penalties for Violation of Overseas Financial Account Reporting Obligation
The Proposed Amendment suggests reducing the current penalties for non-reporting/under-reporting from a progressive rate of 10-20% (up to KRW 2 billion) to a flat rate of 10% (up to KRW 1 billion), while reducing non/false statement penalties from 20% to 10%. This reduction will apply to reports due on or after January 1, 2025.
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(1)
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Abolition of Financial Investment Income Tax Regime
To protect Korean investors and stimulate the domestic capital markets, the Proposed Amendment seeks to abolish the financial investment income tax regime scheduled to commence on January 1, 2025, while maintaining the existing capital gains tax regime for stocks and similar assets.
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(2)
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Deferral of Taxation of Virtual Assets
In order to protect the users of virtual assets and maintain market stability, taxation of virtual assets scheduled to commence from January 1, 2025 will be postponed by two years. Accordingly, income generated from the transfer or lending of virtual assets will be taxed on or after January 1, 2027.
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4.
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Value-Added Tax (“VAT”)
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(1)
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Establishment of New Grounds for Assessment of VAT on Tax Evaders at Any Time (Introduction of New Provision)
To combat VAT evasion, a new provision in the Proposed Amendment allows for the assessment of VAT at any time if there is credible risk of evasion, taking into consideration false VAT invoices, the status of business place and overall business conditions. This provision applies to VAT-able supplies on or after January 1, 2025.
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(2)
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Strengthened Penalties Against Disguised Business Operators
The penalty rate for disguised business operators (i.e., those whose VAT-able businesses are registered in another person’s name) will be increased from 1% to 2% of the supply value. The strengthened penalties will be effective for supplies on or after January 1, 2025.
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[Korean Version]
