1.

Corporate Income Tax
 

A.

Introduction of Domestic Production Tax Credit

A special provision introduces a volume-based domestic production tax credit for domestic corporations engaged in production and supply of qualifying goods within Korea (but outside the Seoul Metropolitan Area’s Overconcentration Control Zone) in the six strategic sectors having vulnerable domestic production bases (i.e., solar power, wind power, secondary batteries, semiconductors, core materials and AI robot components). This credit is not available to production at facilities that already received the integrated investment tax credit. However, taxpayers who wish to apply for the new domestic production tax credit may cancel a previously received integrated investment tax credit by December 31, 2026, without incurring underreporting or late payment penalties. Taxpayers can thus compare the tax burden effects between the two credits and consider applying for the credit that is more favorable. The new domestic production tax credit will apply to production and sales starting in taxable years beginning on or after January 1, 2027.
 

B.

Tax Reform on Treasury Stocks
The tax framework for treasury stock will be revised to align with and reflect the revised Commercial Act (March 2026), which treats treasury stocks as capital. Thus, the gains and losses on the disposal of treasury stocks are treated as capital transactions and excluded from taxable income and deductible expenses, respectively. Further, if a company acquires treasury stocks from its shareholders, the amount paid to the shareholders in excess of the amount acquired by the shareholders will be taxed as deemed dividends in the hands of the shareholders, regardless of the corporation’s purpose of acquisition. This amendment will apply to any treasury stock acquisitions, dispositions or resulting deemed dividends occurring on or after January 1, 2027.
 

C.

New Tax Reductions for Startups in Jeonnam-Gwangju Special Metropolitan City
To support balanced regional development, a new tax incentive will be introduced for companies that launch a startup or establish a new business site within the designated investment promotion districts and cultural industry promotion districts within the Jeonnam-Gwangju Special Metropolitan City. This incentive will grant a 100% reduction in corporate and individual income taxes for the first five years, followed by a 50% reduction for the subsequent two years. The new provision will be applicable to startups launched or business sites established on or after January 1, 2027, and remain in effect until December 31, 2029.
 

2.

Individual Income Tax
 

A.

Increase in Tax Rate for Special Taxation of Foreign Workers’ Income

To improve tax equity with domestic workers, the special tax rate on earned income for foreign workers who first provide labor in Korea on or before December 31, 2029, will be increased from 19% (20.9% including local income tax) to 21% (23.1% including local income tax). However, foreign workers who first begin providing labor in Korea between January 1, 2027 and December 31, 2029 will still be eligible to benefit from the flat tax rate. This amendment will apply to income earned on or after January 1, 2027.
 

B.

Establishment of Tax Exemption Criteria for Other Income on Retiree Discounts

To rationalize the tax exemption criteria for retiree discounts, when a retiree of a company or its affiliates purchases goods or services from that company or its affiliates at a discounted price below market value, the discount amount will be classified as other income, similar to the current rules for active employee discounts. Additionally, a new standard will be established to exempt this other income from tax up to 20% of the market value of the goods or services or KRW 2.4 million per year, provided that the tax exemption requirements are met. This amendment will apply to goods or services purchased at a discount on or after January 1, 2027. However, the previous regulations will still apply to purchases made under contracts signed on or before December 31, 2026.
 

3.

International Tax
 

A.

Rationalization of Criteria for Determining Controlled Foreign Corporations (“CFCs”)

To rationalize the criteria for determining CFCs to align with the global minimum tax standards, the effective tax rate threshold (one of the conditions under which the retained earnings of a CFC are deemed to be distributed as dividends) will be lowered from the current 70% or less of the highest nominal corporate income tax rate (17.5%) to less than 15%, which is identical to the global minimum tax level. This amendment will apply to fiscal years beginning on or after January 1, 2027.
 

B.

Clarification of Administrative Fines for Non-Compliance With Information Submission Obligations for International Transactions

Previously, administrative fines for violating the obligation to submit international transaction data were imposed only in cases of non-submission within the deadline or the submission of false data. The amendment adds “submitting data with significant omissions or errors” as an additional ground for imposing administrative fines. As a fine of up to KRW 100 million can be imposed for each type of international transaction data, ensuring accuracy when submitting data will be critical in the future.
 

4.

Value-Added Tax (“VAT”)
 

A.

Supplementation of VAT Rules on Service Transactions With Foreign Corporations

When a foreign business supplies services in Korea, the domestic recipient is required to pay VAT via a proxy tax payment mechanism if that recipient is a tax-exempt business. To improve taxpayer convenience, a proviso will be newly established whereby, when a foreign corporation with a domestic place of business supplies services to a domestic corporation in Korea (even if such services are supplied without any connection to the foreign corporation’s domestic place of business) and the foreign corporation’s domestic place of business issues a VAT invoice, the transaction will be deemed as a service transaction connected to that domestic place of business. As a result, the reverse-charge (proxy payment) rule will not apply to the domestic corporation that receives the related services, and instead the domestic place of business of the foreign corporation will file and pay the VAT. This amendment will apply to services supplied starting from the taxable period that includes the enforcement date of the Presidential Decree of the Value-Added Tax Act.