1.

International Tax
 

(1)

Change in Effective Date of Undertaxed Payment Rule Under Global Minimum Tax System (Pillar Two)

Under the Income Inclusion Rule (the “IIR”), top-up tax on a low-taxed constituent entity (i.e., with an 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 Payments Rule (the “UTPR”). Taxation under the IIR will remain unchanged and applicable to taxable years commencing on or after January 1, 2024, and the effective date of the UTPR will be delayed under the Ratified Amendments by one year to January 1, 2025.
 

(2)

Change in Obligation for Submission of International Transaction Statement 

Corporate taxpayers required to submit a Local File/Master File (i.e., domestic corporations or permanent establishments of overseas corporations with (i) revenues exceeding KRW 100 billion, and (ii) cross-border transactions with offshore related parties in excess of KRW 50 billion) were not obligated to submit a separate Statement of International Transactions as they had submitted this statement as an attachment to the Local File. However, in order to strengthen the management of tax resources from international transactions, the above corporate taxpayers will be required to submit this statement as per the respective provisions and required forms (applicable to taxable years commencing on or after January 1, 2024).

It should be noted that under the proposed tax law amendment released on July 27, 2023, the submission deadline for the Local File/Master File would be shortened from the current 12 months to six months after the taxable year-end. However, the National Assembly never passed this proposed amendment. As a result, the submission deadline for the Local File/Master File will remain at 12 months after the taxable year-end.
 

2.

Finance Tax
 

(1)

Taxation of Omnibus Account for Overseas Investors (“Omnibus Account”)

Where an overseas company or non-resident individual receives Korean source income through an Omnibus Account, the withholding agent, who is the payer of the income, will be required to withhold tax at the domestic tax rate without applying for any tax exemptions or reduced rates under a treaty. If the substantive owner of the Korean source income intends to claim a tax exemption or 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).
 

(2)

Extension of Scope of Application of Partnership Tax Regime

Under the current partnership tax regime, a shareholder of an entity subject to the partnership tax regime is not permitted to apply the partnership tax regime to the shareholder. Under the applicable amendment, however, in the context of a master-feeder fund structure, a partner (master fund) in the form of an investment limited partnership (i.e., investment hapja hoesa) that is a private collective investment vehicle (with only corporate entities as its members) for institutional investors, may select to apply the partnership tax regime as an exception. The amended provision applies from the taxable year containing December 31, 2023, to future taxable years. The application period for applying the partnership tax regime as an exception for a taxable year containing December 31, 2023 or a taxable year commencing on January 1, 2024 has already passed (the deadline was January 31, 2024).
 

3.

Corporate Income Tax
 

(1)

New Limit on Dividends Received Deduction

Under the amendment to the provision on dividends received deduction (“DRD”) (under which the dividends received by a Korean company are excluded in whole or in part from the company’s taxable income), DRD is disallowed for dividends received that have not been subject to corporate income tax (i.e., deemed dividends equal to the amount in excess of the tax basis when a Korean company (shareholder of another Korean company) receives a consideration for capital reduction, deemed dividends arising from the capitalization of capital surplus where the company has treasury shares, etc.) (applicable to dividends distributed on or after January 1, 2024).
 

(2)

Expansion of Corporate Taxpayers Eligible for Deduction of Wages of Employees at Overseas Subsidiaries

Prior to the amendment, only small and medium enterprises and middle market enterprises were eligible for the deduction of wages of their employees stationed at their overseas subsidiaries. Under the amended Corporate Income Tax Law, all Korean companies may deduct the abovementioned wages, provided that the Korean company withholds and pays personal income tax on the wages paid to the stationed employees (applicable to the taxable year containing February 29, 2024 and future taxable years).
 

4.

Personal Income Tax
 

(1)

Extension of Application Period of Flat Rate Tax Available for Foreign Workers

The application period for the flat tax rate is extended from December 31, 2023 to December 31, 2026. 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 until December 31, 2023, applicable to income paid on or after January 1, 2024).
 

(2)

Obligation to Submit Details of Overseas Stock-Based Compensation Transactions

In the case an employee/executive 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 on 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).
 

5.

Miscellaneous
 

(1)

Penalties Imposed for Non-Registration as Simplified VAT Business Operator 

1% of supply value will be imposed as penalty on an overseas corporation that fails to register as a simplified VAT business operator within 20 days from its business start date (applicable to supply of services on or after January 1, 2024).
 

(2)

Enactment of Penalty Cap for Delayed Issuance of Invoices by Domestic Companies 

If a domestic company fails to issue an invoice in connection with the supply of goods and services in a timely manner but tardily issues the invoice by the 25^th of the month following the end of the taxable year in which the supply took place, the penalty amount will be limited to a maximum of KRW 100 million (KRW 50 million for small and medium enterprises) (applicable to penalties imposed on or after January 1, 2024).