The 2015 Tax Revision Proposal which was announced in August 2014 by the Ministry of Strategy and Finance, again updated and published on 18 September 2014 with some minor changes.

According to the proposal the main points are summarized below:

Personal income tax

  • A person is a domestic resident if that person has a residence in Korea for 183 days or longer per year (the current requirement is a year).
  • When a shareholder of a publicly listed company receives a cash dividend on shares meeting the qualifications listed below, the withholding tax rate will be reduced from 14% to 9% (for those subject to separate taxation).
  • The annual limit for payment of non-taxable retirement funds is increased from KRW 4 million to KRW 7 million.
  • The deduction of retirement income will vary depending on the level of income (currently, a uniform deduction applies).

Corporate income tax

  • Where a company’s rate of increase of average wages for the current year is higher than the rate for the past 3 years, a 10% deduction in tax liability (5% for conglomerates) is available, corresponding to the amount of increased wage that exceeds the increased rate of average wages for the past 3 years.
  • The useful life of a patent for depreciation purposes is shortened from 10 years to 7 years.
  • Indirect foreign tax credit is subject to more stringent requirements. A domestic company must hold directly at least 25% of the controlling shares of a foreign subsidiary, which is up from the existing 10% shareholding requirement. Indirect shareholders will no longer be allowed to claim the credit; therefore the indirect foreign tax credit will apply only to top level subsidiaries.
  • The uniform application of a deduction limit with regard to foreign corporate tax will be repealed. The deduction limit will vary by country.
  • If a domestic corporation owns or holds a right to real property, the corporation must report the investment.

International tax

  • Under the current thin capitalization rule, if a loan amount from a foreign controlling shareholder exceeds the capital by three times, the interest payment on the excess amount is denied recognition as a deductible expense. Under the revised proposal, a payment of interest on the excess amount will not be recognized as an expense if the loan amount is more than double the capital.
  • The tax evasion law will apply to any shares of foreign corporations owned by relatives of a domestic resident.
  • If a domestic resident or a domestic corporation does not report its overseas financial accounts, that person or corporation will be subject to an increased penalty.
  • The statute of limitations for tax evasion involving an international transaction will be increased from 10 years to 15 years (the statute of limitations for regular tax assessment is 5 years).

The Proposal aims to encourage the economy, build up welfare programmes, achieve fair taxation and set up a taxpayer friendly taxation system. If the Proposal is approved by the National Assembly, it will take effect as of 1 January 2015. The MoSF also announced on 18 September 2014 its Budget plan for year 2015.