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Korea Enacts 2019 Tax Revision Bill

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

15 January 2020


The Korean Government has announced that the 2019 Tax Revision Bill was enacted on January 6, 2020, with a number of new measures added to the existing proposals.

The 2019 Tax Revision Bill

According to an English-language release from the Ministry of Economy and Finance, released in July 2019, for companies, the bill includes provisions to:

  • Expand the tax reduction for companies investing in improving productivity, from one percent to two percent for large conglomerates, from three to five percent for medium-sized companies, and from seven to 10 percent for SMEs;
  • Extend tax relief measures for those investing in the development of a manufacturing facility, or investing in safety technology, for two years. The manufacturing facility tax relief will be expanded to the pharmaceutical and logistics industry if they invest in high-tech equipment and facilities, and the safety investment tax relief will be extended to companies creating energy pipelines and LPG facilities;
  • Extend the 50 percent accelerated depreciation incentive by six months to June 30, 2020;
  • Provide accelerated depreciation relief of 75 percent to SMEs and medium-sized enterprises for their investments made during the second quarter of this year;
  • Extend the corporate tax reduction for startups doing business in specified areas for a further two years;
  • Expand the corporate investment tax reduction to five percent for SMEs and three percent for medium-sized leading enterprises if they are doing business in regulation-free zones;
  • Impose alcohol content-based tax rates on beer and unstrained rice-wine (makkoli);
  • Ease requirements for corporate inheritance tax incentives. Specifically, the Government will ease the current requirement that to be eligible for tax relief there can be no change in business, and the business must be retained for seven years, rather than 10. It will also ease requirements for paying inheritance taxes in installments;
  • Expand the installment tax payment and grace period given to capital gains made due to moving manufacturing facilities from a two-year installment with two-year grace period, to a five-year installment with five-year grace period;
  • Expand the tax deduction for losses incurred in the previous year from 60 percent of the earnings for the year to 100 percent; and
  • Double the amount of maintenance costs that are tax deductible to up to KRW6m (USD5,000).

On supporting consumer consumption and Korean exporters, the bill will:

  • Raise the purchase ceiling for locals at downtown and port arrival duty-free shops from USD3,000 to USD5,000;
  • Provide foreign visitors with an on-the-spot tax refund for up to KRW2m worth of purchases;
  • Extend the VAT refund given to foreign tourists for their medical service costs and accommodation costs by one year;
  • Shift the obligation to pay the cost of cargo security check to the government, for goods imported by SMEs and medium-sized enterprises;
  • Give tariff cuts to SME and medium-sized leading exporters when they import materials to build manufacturing facilities.

On research and development, the bill will:

  • Expand the research and development tax reduction to new industries;
  • Extend the "tax reduction carry-over" to the next 10 years;
  • Provide a research and development tax reduction to foreign research institutes for projects commissioned by Korean companies;
  • Raise the ceiling of the capital gains tax exemption for stock options exercised by employees;
  • Expand the capital gains tax exemption given to venture capital investors from the sale of old stocks to the sale of new stocks; and
  • Provide a 50 percent income tax cut for five years to talented Korean nationals returning from overseas.

Other measures included in the bill are intended to improve the fairness of Korea's tax system. The bill includes proposals to:

  • Extend the 10 percent tax reduction for large corporate investment in SME employee welfare funds to 2022;
  • Expand the corporate investment tax reduction given to SMEs and medium-sized enterprises participating in local government job programs to up to 10 percent;
  • Expand the tax support for women returning to work after having children. Specifically, the tax burden for these works will be lowered by between 15 and 30 percent. The tax relief will cover those that have been out of the workforce for at least three years, and not greater than 15 years, up from 10 years previously.

For consumers, the Bill includes proposals to:

  • Extend the income tax deduction for credit card use by three years to 2022, and offer 40 percent deduction for spending via "Zero Pay," a fee-free mobile payment system;
  • Extend the VAT reduction for purchasing tax-free farm products by two years to 2021;
  • Raise the income ceiling for work incentives for low-paid households.
  • Expand the tax support for private pension plans; and
  • Adopt a long-term tax payment plan for small business owners whose delinquent taxes are KRW50m or less. Under such, payments can be made in installments over up to five years.

The bill further proposes to lower penalties imposed on unreported overseas financial accounts; raise gift tax rates on the wealthiest taxpayers; enhance tax breaks for company cars; work to impose taxes on patent rights registered overseas that are owned by Korean companies; and increase enforcement activities on frequently errant large corporate taxpayers.

New changes

In a January 6, 2020, statement, announcing the enactment of the bill, the Korean Government said that its proposals have been revised in three areas.

First, the deduction for research and development will be increased to 40 percent, and the scope of the incentive will be broadened from 173 technologies to 223. The bill also expands the 50 percent income tax break for financial technology startups and ventures for the first five years of operation.

Second, the duty-free shopping rules will be eased in respect of duty-free shops in Jeju Island, and, finally, corporate tax breaks will be enhanced for companies who support mothers to return to work.

The Korean Government said it expects to release the finalized version of the Bill in the second week of February 2020.

TAGS: inheritance tax | Finance | tax | investment | small business | business | value added tax (VAT) | tax incentives | energy | employees | corporation tax | enforcement | manufacturing | venture capital | tax rates | gift tax | Korea, South | tax breaks | regulation | penalties | research and development | Other | Economy | Tax

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