At the end of December 2020, South Korea has enacted a tax revision bill for 2021, which was passed by Korea’s National Assembly on 2 December 2020. The tax revision bill generally effective from fiscal years beginning on or after 1 January 2021. The Enforcement Decree of the Tax Law will be finalized and enacted in February after the cabinet council meeting and other related procedures. The main changes of the 2021 tax revision bill are:
Modification to transfer pricing forms and documentation
The following changes are applicable to submissions of transfer pricing documentation on or after 1 January 2021;
- Summary of International Transactions and Summary of Income Statements must submit within six months from the fiscal year-end;
- Master file and local file must submit within 12 months from the next day of the fiscal year-end; and
- APA annual report must submit Within 12 months from the next day of the fiscal year-end.
Advance Pricing Agreements (APAs)
The rollback period for APAs is extended as follows:
- for bilateral APAs: from five to seven years,
- for unilateral APAs: from three to five years.
This applies to APA applications filed on or after 1 January 2021.
Capital gains tax regime for the disposal of virtual assets
The Tax Revision bill includes capital gains tax regime for the disposal of virtual assets. Gains resulting from the disposal of virtual assets by a foreign corporation or a foreign individual are subject to withholding tax at the lesser of 11% of the transfer price or 22% of the net capital gains applicable from 1 January 2022.
Modification to foreign tax credit regime
The Tax Revision Bill revokes the deduction method in the foreign tax credit regime which is effective for fiscal years beginning on or after 1 January 2021. Foreign tax payments may still be claimed as a tax deduction method if it is not claimed. The Bill also extended the carryforward period for excess foreign tax credits from 5 years to 10 years.
Relief period for net operating losses
The Tax Revision Bill extends the net operating losses carryforward period from 10 years to 15 years for the net operating losses reported on or after 1 January 2021.
