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2023 Proposed Tax Law Amendments – Notable Items


On July 27, 2023, the Ministry of Economy and Finance (the “MOEF”) released the “2023 Proposed Tax Law Amendments” (the “Proposed Amendments”). Outlined below are some of the Proposed Amendments that may be of interest to taxpayers.

The timeline for the Proposed Amendments is as follows:

  • July 28 to August 11 (14 days): Open to public comments

  • August 29: Cabinet meeting

  • September 1: Submission to the National Assembly

The Proposed Amendments are subject to change during the review process. Once finalized and ratified by the National Assembly, which is expected to take place in December 2023, the Proposed Amendments would generally be effective from January 1, 2024.

The main items of interest regarding the Proposed Amendments are as follows.


International Tax


Change in the effective date of undertaxed payment rule under the global minimum tax system (Pillar Two) (Article 1 of Addenda of International Tax Coordination Law)

Under the Income Inclusion Rule (the “IIR”), the top-up tax on a low-taxed constituent entity (i.e., an entity with an effective tax rate below 15%) will be imposed on the parent entity (generally, the ultimate parent entity), while the amount of the 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. Taxation under the IIR will remain unchanged and applicable to taxable years commencing on or after January 1, 2024, and the effective date of taxation under the undertaxed payment rule will be pushed back under the Proposed Amendments by a year to January 1, 2025.


Shortened submission deadline for Local File/Master File (Article 16 of the International Tax Coordination Law)

The submission deadline for the Local File/Master File will be shortened from the current 12 months to six months after the taxable year-end, and the Statement of International Transactions, etc., currently submitted as an attachment to the Local File will be submitted as per the respective provisions/required forms (applicable to taxable years commencing on or after January 1, 2024). 


Finance Tax


Taxation of omnibus accounts for foreign investors (“Omnibus Account”) (newly enacted) (Article 119-4 of the Personal Income Tax Law)

In cases where a foreign company or non-resident individual receives domestic (Korean) source income through an Omnibus Account, the withholding agent who is the payer of such income will be required to withhold tax at the domestic tax rate without applying any tax exemptions or a reduced rate under a treaty. If the substantive owner of the domestic source income intends to claim a tax exemption or a reduced rate under an applicable treaty, the substantive owner or the withholding agent may file a refund application (applicable to income paid on or after January 1, 2024).


Extension of scope of application of partnership tax regime (Article 100-14~18 of the Special Tax Treatment Control Law)

Under the current partnership tax regime, a partner of a partnership subject to the partnership tax regime cannot elect to apply the partnership tax regime to the partner. According to the relevant proposed amendment, however, in the context of a master-feeder fund structure, a partner (master fund) in the form of an Investment Limited Partnership meeting certain requirements prescribed by the Presidential Decree, including being a private collective investment vehicle for institutional investors, may select to apply the partnership tax regime as an exception (applicable to applications made on or after January 1, 2024).


Corporate Income Tax


New limit on dividends received deduction (Article 18-2 of the Corporate Income Tax Law)

Under the proposed amendment to the provision on dividends received deduction (the “DRD”) (under which a part of the dividends received by a Korean company is excluded from the company’s taxable income), the DRD is disallowed for some items of the deemed dividends enumerated in the tax law (i.e., amount exceeding the tax basis when a Korean company (shareholder of another Korean company) receives a consideration for capital reduction) (applicable to dividends distributed on or after January 1, 2024).


Personal Income Tax


Extension of application period for the flat tax rate available for foreign workers, etc. (Article 18-2 of the Special Tax Treatment Control Law)

The application period for the flat tax rate is extended from December 31, 2023 to December 31, 2028. In addition, in the case of foreign workers who choose to have their earned income taxed under the special flat tax rate regime, the value of company-provided housing received by such foreign workers is permanently excluded from the scope of earned income subject to the flat tax rate (prior to the current amendment, the exclusion was temporary and would only be effective until December 31, 2023, pursuant to the Addendum to the Presidential Decree of the Personal Income Tax Law) (applicable to tax years beginning on or after January 1, 2024).


Obligation to submit details of foreign stock-based compensation transactions entered into by officers and employees, etc. (Article 164-5 of the Personal Income Tax Law)

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




Penalties imposed on simplified VAT business owners providing electronic services (Article 60 of the VAT Law)

A penalty equivalent to 1% of supply value will be imposed on simplified VAT business owners that fail to register within 20 days from the date they started their business (applicable to the supply of services on or after January 1, 2024).


Enactment of penalty cap for delayed issuance of VAT-exempt invoices by domestic companies (Article 49 of the National Tax Basic Law)

If a domestic company fails to issue an invoice in connection with the provision of goods and services which are exempt from VAT in a timely manner, the penalty amount the company will be subject to cannot exceed KRW 100 million (KRW 50 million for small-sized companies) (applicable to penalties imposed on or after January 1, 2024).


[Korean Version]