On July 31, 2025, the Ministry of Economy and Finance (the “MOEF”) released its “2025 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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August 1 – August 14, 2025: Public comment period of 14 days
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August 26, 2025: Approved by the Cabinet
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September 3, 2025: 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 2025, the majority of the Proposed Amendment will come into effect on January 1, 2026.
Notable items of the Proposed Amendment are as follows.
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(1)
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Increase in Corporate Income Tax Rates
The corporate income tax rates will be increased by 1.1% (inclusive of local income surtax) for all brackets and thereby restored to pre-2022 levels (11% on taxable income up to KRW 200 million, 22% on taxable income over KRW 200 million up to KRW 20 billion, 24.2% on taxable income over KRW 20 billion up to KRW 300 billion, and 27.5% for on taxable income over KRW 300 billion). The increased tax rates are applicable to taxable years commencing on or after January 1, 2026.
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(2)
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Amendment and Extension of Applicable Period of Preferential Tax Treatment for Promotion of Investment/Mutual Cooperation (Additional Tax on Excessive Earning Reserve)
To encourage companies to distribute their profits as dividends to shareholders, dividends will be treated as an expenditure that qualifies for reinvestment, which is not subject to additional tax, and the ratio of corporate income that companies must reinvest/distribute will be increased. Further, the applicable period of the Preferential Tax Treatment for Promotion of Investment/Mutual Cooperation regime will be extended for another three years, until December 31, 2028. This amendment will be applied to income arising in taxable years commencing on or after January 1, 2026.
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(1)
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Addition to Documents Required for Refund Claims Based on Arm’s Length Price Adjustment
In addition to the transaction price adjustment report and document substantiating the arm’s length price, a document substantiating double taxation in the other country, such as amended income tax return, is added to the documents required for a refund claim based on an arm’s length price adjustment to prevent tax avoidance. This adjustment is applicable to refund claims filed on or after January 1, 2026.
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(2)
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Introduction of Domestic Top-Up Tax under Global Minimum Tax Rule
To secure the right to impose tax on multinational corporations located domestically under the global minimum tax rule, a domestic top-up tax will be introduced. This will allow Korea to tax the under-taxed profits of the domestic constituent entity of a multinational enterprise group with priority, if such entity is taxed at a rate lower than the minimum tax rate (i.e., 15%). This amendment will apply to taxable years beginning on or after January 1, 2026.
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(3)
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Introduction of Obligation to Submit Application for Reduced Withholding Tax Rate on Korean Source Income of Non-Residents
Under the current law, for the beneficial owner of domestic source income to claim a reduced tax rate pursuant to an income tax treaty, such person is required to provide an Application for Reduced Tax Rate under Applicable Tax Treaty (the “Application”) to the withholding agent, who is then required to retain such Application. The Proposed Amendment newly requires the withholding agent not only to acquire and retain such Application, but to submit the Application to the local tax office with jurisdiction by the end of February of the year following the year in which the relevant income is paid. This amendment will apply to income paid on or after January 1, 2026.
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(1)
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Increase in Education Tax Rate
Currently, a single education tax rate of 0.5% applies to financial institutions and insurance companies. According to the proposed amendment, the same 0.5% tax rate will continue to apply to education tax base of up to KRW 1 trillion but an increased tax rate of 1% will apply to education tax base in excess of KRW 1 trillion. This adjustment is applicable to taxable years commencing on or after January 1, 2026.
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(2)
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Reversion of Securities Transaction Tax (“STT”) Rate
For shares transferred on the KOSPI market (KRX), the STT rate will be increased from zero to 0.05%, resulting in a total tax rate of 0.2%, including the 0.15% special agriculture and fishery tax. For shares transferred on the KOSDAQ market and Korea Over-The-Counter (“K-OTC”), the STT rate will be increased from 0.15% to 0.2%, thus reverting to the STT rate in 2023. This adjustment is applicable to shares transferred from the effective date of the Presidential Decree of the Securities Transaction Tax Act.
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4.
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Value-Added Tax (“VAT”)
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(1)
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Extension of VAT Exemption Period for Greenhouse Gas Emission Permits
To stimulate the greenhouse gas emission permit market, the applicable period for the treatment of greenhouse gas emission permits as a VAT-exempt item will be extended for an additional three years, from December 31, 2025 to December 31, 2028.
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(2)
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Extension of VAT Refund Period for Accommodation Services Provided to Foreign Tourists
To revitalize the tourism industry, a VAT refund for accommodation services provided to foreign tourists, currently applicable until December 31, 2025, will be available for three additional years (i.e., until December 31, 2028).
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[Korean Version]
