South Korea: Tax developments in response to COVID-19

This page offers an overview of tax developments being reported globally by KPMG member firms in response to the Novel Coronavirus (COVID-19).

The content will be updated regularly. However, due to the fast-moving pace of change, it may not always reflect the most current developments in a given jurisdiction. Please refer to the date of accuracy and refer to the relevant links, under additional information, for original source information.

Tax Credits for rental business owners who have lowered the rental fee of a commercial building (RSTA §96-3):

If a landlord renting a commercial building cuts the rental fee of a small business tenant from January to June 2020, 50% of the rental-fee reduction will be tax deducted from the landlord's income and corporate taxes, and this tax credit is expected to be applicable for another 6 months until December 2020.

Income and Corporate Tax reductions for small and medium-sized enterprises in special disaster areas (Daegu, Gyeongsan, Bonghwa and Cheongdo) for the taxable period including June 30, 2020 (RSTA §99-11):

• Income and corporate tax on income generated by SME in special disaster areas due to damage to infectious diseases will be reduced by a certain percentage.
• Reduction rate for small-sized enterprise: 60%, reduction rate for medium-sized enterprise: 30%, the limit of the total tax reduction: KRW 200 million.

Extending the scope of tax support for overseas companies' return to Korea (RSTA §104-24):

• Income and corporate tax reductions are provided to the expansion of existing domestic operations while shutting down or downsizing overseas operations to support overseas companies' returning to Korea.
• Reduction rate: 100% for first 5 or 3 years, and 50% for additional 2 years.

Temporary relief for VAT (RSTA §108-4 & §108-5):

• VAT imputed in 2020 for small self-employed businesses with annual sales of KRW 80 million (excluding value added tax) or less will be reduced to the level of simplified taxpayers.
• The base amount of the VAT exemption for simplified taxpayers will be raised to KRW 48 million from KRW 30 million temporarily in 2020.

Temporary reduction of Individual Consumption tax on car purchases (RSTA §109-4): 

70% of the individual consumption tax will be reduced for cars taken out of manufacturing sites or declared as imports from March to June 2020, and 30% of individual consumption tax will be reduced for another 6 months until December 2020.

Temporary Increase in the income tax deduction rate for credit card or other expenses (RSTA §126-2 ):  

The income tax deduction rate for the amount paid by credit card or other from March to June 2020 will be doubled(from 15~40% to 30~80%).

Temporary increase to the amount of limitation relating to entertainment expenses - the limitation amount of entertainment expenses will be increased to:

• 0.35% of revenue, when revenue is not more than KRW 10 billion.
• 0.25% of revenue, when revenue is over KRW 10 billion but not more than KRW 50 billion.
• 0.06% of revenue, when revenue is over KRW 50 billion.

Additional Information

• Tax credits for businesses participating in prepayment of goods and services (RSTA §99-12): If an individual business owner or a corporation prepays for goods and services to be provided by a small business through December 31, 2020, 1% of the prepaid amount will be allowed as a tax credit for individual income tax or corporate income tax purposes. The prepayment should be made between April and July of 2020 and at least three months before the relevant goods and services are provided, and the prepaid amount should be at least KRW 1 million per transaction.
• Carryback of losses generated by SME during first half of business year including December 31, 2020 (RSTA §8-4): If an SME generates losses during the first half of the business year including December 31, 2020, such losses year can be carried back to the previous business year to claim a refund. If the SME’s losses for the full tax year turn out to be less than the half year losses carried back, the difference should be later returned. 
• A business that has had a Covid-19 infected employees or customers or a small and medium-sized enterprise trading with China may extend deadline for CIT reporting/payment (up to 9 months) and may postpone tax audit.

Amended tax bill (including strategies for overcoming COVID 19 and enhancing economic vitality) has been proposed on July 2020 and will be finalized through approval in the National Assembly. Proposed amendments are as follows:

Expansion of investment tax credits 

Announcement of new investment tax credit scheme integrating most of current investment tax credit provisions  

• Allow investment tax credits for investments in all types of fixed assets, except for certain non-qualified assets (Positive type  Negative type)
• Increase investment tax credit amount: Basic tax credit [Investment amount x 1% (for large-sized enterprises), 3% (for middle-sized enterprises), or 10%(for small and medium-sized enterprises)] + Additional tax credit [Investment amount exceeding the average investment for the immediately preceding 3 years x 3% (Limit: twice the basic tax credit amount)]

Support for investments in new industries (e.g., businesses supported by the Korean New Deal policy) 

Expansion of scope of new growth-engine technology commercialization facilities qualified for additional investment tax credits to include new businesses supported by the Digital/Green New Deal policies (Precise scope has not been decided yet).

• Increase basic tax credit rate by 2% for investments in new growth-engine technology commercialization facilities 

Extension of carryforward period for tax credits and net operating losses

• Tax credits: 5 years  10 years
• Net operating losses: 10 years  15 years.

Additional information regarding employment-related measures, economic stimulus measures and other measures.