Korean Corporate Tax Cuts To Go Before Parliament

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

04 June 2008

The Korean government has announced plans to submit legislation cutting the corporate tax rate to parliament by the end of this month, with the aim of reducing the rate over the latter part of this year, if the proposals are approved.

Confirming announcements made earlier this year, the Finance Ministry reiterated that the corporate tax rate would initially be cut from 25% to 22%, with the rate to be cut still further in coming years, bringing it down to between 10% and 20% by 2013.

Minimum tax rates are also set to be reduced from 13% to 10%, according to the Finance Ministry.

The department revealed that the tax cuts are taking place two years ahead of schedule.

Speaking last month with regard to the rationale behind the planned tax cuts, Vice Finance Minister, Choi Joong Kyung observed that: "A high corporate tax rate scares away investors, takes away chances of creating new jobs."

He explained that:

"South Korea is faced with various difficulties including rising oil and grain prices. We have to take steps and make an environment so companies will invest, because all economic indicators point downwards, meaning the economy is entering a downturn."

Later that month, the government also announced that it hoped to increase the attractiveness of the country's free economic zones (FEZs) by extending tax breaks, reducing operating costs, and making it quicker and easier to invest and work in the zones.

Following a National Competitiveness Commission meeting in late May, Knowledge Economy Minister, Lee Youn-ho revealed that tax breaks and exemptions available to companies establishing themselves in FEZs are likely to be extended from five years to seven, and that red tape is to be dramatically reduced in the area of establishing new businesses in the zones, in order to speed the process.

Additionally, in order to attract the desired five foreign universities and 10 high-tech laboratories to FEZs by 2012, entry requirements will be reduced for investors and workers.

According to official reports, the government plans to force competition amongst the country's six FEZs by allocating support according to how successful they are in attracting investment.

The Ministry of Knowledge Economy may also seek the creation of a designated law to govern FEZs, Lee reportedly revealed.

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