Foreign Firms To Benefit From Expanded Tax Breaks In South Korea

by Mary Swire, Tax-News.com, Hong Kong

12 January 2006

The South Korean Ministry of Finance has announced new plans to amend a number of tax laws and regulations that will benefit individual taxpayers and both domestic and foreign corporations through an expanded programme of tax incentives.

Under the proposals, foreign companies investing in South Korea's economic free zones will not be required to pay corporate taxes for a period of three years, following which firms will pay corporate tax at half of the normal rate for a further two years.

Companies that currently qualify for the tax break are in the manufacturing, tourism and logistics industries, but under the new proposals, pharmaceutical firms will also be added.

Another measure will temporarily reduce the value added tax burden for small- and medium-sized businesses by cutting the VAT rate to 15% from 20% until December 2007.

However, the new laws will require SMEs to report income earned by all of their employees, no matter how small the amount.

The government has said that it wants to keep track of wages to help it implement a new earned income tax credit.

The proposals are due to come into effect at the end of January following a review by the National Assembly.

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