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South Korea Plans Tax Changes To Boost Growth

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

02 January 2017


Within its proposed policy framework for 2017, the South Korean Ministry of Strategy and Finance has announced various tax changes to counteract the continued economic uncertainties, including measures to create jobs and support new growth industries.

For example, to encourage the commencement of job-creating investments, there will be an extra two percent corporate tax credit for posts created in projects started in 2017. In addition, the corporate tax credit for regular positions created will be raised from KRW5m (USD4,160) to KRW7m per employee (from KRW2m to KRW3m for large conglomerates).

It was also disclosed that a temporary-worker support package will be introduced in the second half of the year. This should increase the corporate tax credit for transferring workers from temporary positions to permanent positions, from KRW2m per transfer to KRW5m.

Research and development (R&D) tax credits are to be increased and expanded across more industrial sectors. The Government proposes to grant the 30 percent credit currently provided to small and medium-sized companies also to large and medium-sized companies (presently only 20 percent).

The industrial areas where the R&D tax credit will be available include artificial intelligence and robotics, next generation electronic information devices and communication systems, bio-health innovation, new energy industry and environment, and future automobile, air, and aerospace technology.

The Government's tax measures also include a strengthening and widening of the tax base on financial instruments. In particular, from April 2018, it is intended that the threshold will be lowered so that shareholders with a stake of one percent or KRW1.5m in shares (previously KRW2.5bn) listed on the Korea Composite Stock Price Index (KOSPI) will be subject to capital gains tax (CGT) on transfers. That threshold will be reduced to KRW1bn in April 2020.

In addition, while only KOSPI 200 futures and options are subject to CGT under the current arrangements, KOSPI 200 equity-linked warrants are to be taxed with effect from April 1, 2017.

The tax exemption thresholds on interest and dividends from long-term deposit-type insurance investments (of 10 years or more) are also to be lowered, and the tax base on earnings from these financial instruments will be extended to those linked with derivatives, as well as those that have not been not originally structured by South Korean financial institutions, but are sold by them (for example, overseas low interest bonds with a forward exchange rate).

Finally, to protect household incomes, the Government plans to expand child tax benefits to families with two or more children, from families with three or more; and to introduce marriage income tax breaks of KRW500,000 per person (KRW1m if both individuals are working).

TAGS: individuals | capital gains tax (CGT) | tax | investment | business | interest | insurance | equity investment | corporation tax | tax credits | stock exchanges | Korea, South | tax breaks | dividends | alternative investment | individual income tax | research and development | business investment

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