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Korea: Tax revision legislation for 2019

Korea: Tax revision legislation for 2019

Proposed tax revision legislation for 2019 was unveiled in late July 2018, and then was approved by the Cabinet Council in late August 2018. The legislation would be enacted with passage by the National Assembly (expected in September 2018).

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Once enacted, most of the legislative measures would be effective 1 January 2019.

Overview of the provisions

Among the measures in the tax legislation are the following items relating to:

Corporate income tax

  • An expanded scope of permanent establishment (PE) of non-resident corporations or individuals (generally reflecting the provision in the OECD’s Model Tax Convention on Income and Capital of 2017)
  • An anti-abuse rule for the PE exemption for preliminary and auxiliary activities
  • An expanded definition of dependent agent PE and clarification of contracts subject to the PE dependent agent rule
  • An extended carryforward period for charitable contribution donations
  • Revised rules for the dividend-received deduction bracket as applicable for a holding company
  • New penalty measures for “illegimate” cash receipts
  • Enhanced limits on the use of net operating losses (NOLs) of foreign corporations
  • “Rationalization” of the tax regime that applies for domestic-source income of overseas investment vehicles (OIVs) and rationalization of the standard for making a foreign corporation determination
  • A provision on the “substantive owner” of domestic OIVs
  • Reduced penalties for failures to issue a receipt for sales made for cash

 

International tax coordination

  • Repeal of the priority granted in applying a tax treaty provision over domestic tax law measures 
  • Enhanced transfer pricing rules
  • New disclosure requirements for mutual agreement procedures (MAPs)
  • An extended range for substantive owners of foreign financial accounts owned by foreign corporations
  • A minimum penalty to be imposed for non-reporting or underreporting of foreign financial accounts

 

Tax incentives

  • A 10% tax credit for profit sharing by a small or medium-sized enterprise (SME)
  • A new tax credit for employees returning to work from leave relating to child care
  • An expanded tax credit to support youth employment
  • Accelerated depreciation for an “innovative growth investment asset”
  • Repeal of the income tax exemption for foreign direct investment
  • Extension of preferential tax rates for foreign employees
  • Extension of the tax exemption period for foreign engineers 

 

Value added tax (VAT)

  • An expanded scope for a deemed supply of goods for VAT purposes
  • An expanded scope of electronic services from foreign service providers subject to VAT
  • An extended payment deadline for “proxy” VAT payments in instances of a business transfer
  • A reduction to the VAT penalties 

 

Other tax law measures

  • An extended statute of limitations for offshore transactions
  • An extended statute of limitations in instances of a change of substantive owner
  • A reduction in the rate of interest owed on penalty assessments with respect to non-compliance with the tax law
  • A limitation on the standard for joint and several tax liability as a result of a split-off or merger
  • A limitation on the secondary tax liability of business transferees
  • A right to record discussions with the tax agents during tax audits
  • An expanded scope of limited tax audits
  • An expanded scope and increased rate for the “exit tax”

 

Local tax

  • A reduction to the rate of exemption from the “acquisition tax” for split-offs and mergers
  • Clarification and an extension of the “sunset” provision on the deemed acquisition tax exemption for holding companies
  • Refund procedures for refunds of withholdings of local income tax

 

Read a September 2018 report [PDF 676 KB] prepared by the KPMG member firm in South Korea

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