Korea (Rep.) unveils 2025 tax revision bill, enhances R&D credits

The 2025 tax reform bill aims to bolster strategic industries and welfare by introducing targeted tax credits for R&D, AI, and K-content, while streamlining corporate and capital gains taxes.

South Korea’s Ministry of Economy and Finance announced the proposed 2025 Tax Revision Bill on 31 July 2025 which aims to support strategic industries and the capital market, streamline the tax system, and create a taxpayer-friendly environment.

The bill focuses on boosting strategic industries and welfare through targeted tax credits and tax adjustments. Key highlights include enhanced tax credits for R&D and investments in future sectors like AI, new tax credits for webtoons to support K-content competitiveness, and expanded tax support for video content creation. Corporate and capital gains taxes are also adjusted as part of the package.

It will be reviewed by the National Assembly and is expected to be finalised and enacted by the end of 2025.

Some of the main tax measures are summarised below:

Corporate tax rate

The proposed bill introduces a one percentage point increase in the corporate tax rate across all income brackets, effective for fiscal years beginning on or after 1 January 2026.  These are:

Securities transaction tax rate increase

The proposed bill introduces increases in securities transaction tax rates for listed securities on the KOSPI, KOSDAQ, and K-OTC exchanges, effective from the date specified in the related decree.

Enhance support for future strategic industries   

• Establish new national strategic technologies and commercialisation facilities in the field of artificial intelligence (AI).
• Extend the applicable period for income tax reductions for returning high-skilled professionals, including those in the AI sector.
• Extend the designation period for manufacturing and repair facilities eligible for tariff reductions on items with tariff rate imbalances, such as semiconductor manufacturing equipment and aircraft.
• Introduce a new tax credit for webtoon content production costs.
• Expand tax support for video content production and extend its applicable period.
• Enhance tax credits for investments in specialised cultural content companies and extend their applicable period.
• Increase tax support for future mobility and transportation technologies designated as national strategic technologies.
• Revise the tax credit scheme for leading cargo owners.
• Strengthen tax incentives for the defense industry.
• Reform the Integrated Employment Tax Credit.
• Strengthen tax incentives for companies’ reshoring to Korea.
• Introduce a new tax deferral scheme for in-kind contributions of foreign subsidiary shares by domestic corporations to foreign entities.

Invigorate capital markets and enhance tax support for venture investment

• Introduce separate taxation on dividend income from companies that pay high dividends.
• Revise the tax incentive scheme for promoting investment and mutually beneficial cooperation.
• Grant tax exemption on investment income earned by the Bank for International Settlements (BIS) from investments in Korean won-denominated assets.
• Expand tax support for universities acquiring substitute income-generating assets.
• Shore up tax incentives for venture investments through private venture capital master funds.
• Extend the applicable period for income deductions on investments in venture businesses.
• Introduce a new tax incentive for venture investments made through special purpose companies (SPCs) established by venture investment funds.

Support regional growth

• Raise the tax credit rate for contributions under the Hometown Love Donation.
• Increase tax incentives for businesses located in Industrial Crisis Response Regions.
• Improve the tax relief scheme for companies relocating to regional areas.
• Introduce a tax deferral measure for in-kind contributions to Project REITs.
• Extend the applicable period for tax support for regional economic and industrial special zones.

Strengthen tax support for small business owners and promote mutually beneficial cooperation

• Expand the deductibility and extend the applicable period for corporate business expenses paid with Local Love Gift Certificates.
• Provide tax relief in the event of early termination of the Yellow Umbrella programme due to business deterioration.
• Relax the eligibility requirements for special tax arrears relief for small-scale sole proprietors.
• Raise the income threshold for tax reductions applicable to the livelihood-based startup SMEs.
• Extend the applicable period of the special VAT deduction for purchases of recycled waste resources and used cars, and introduce a cap on the deductible amount.
• Expand the tax deductibility of donations made by social enterprises.
• Extend the applicable period of tax credits for landlords who reduce commercial rent.
• Introduce a new tax support scheme for smart factory-related facilities of SMEs.
• Extend the applicable period for tax credits on contributions to the Fund for Mutually Beneficial Cooperation between Large Enterprises and Small-Medium Enterprises.

 Safeguard taxpayers’ rights and improve taxpayer services       

• Rationalise the scope of capital gain tax carried forward.
• Introduce new exceptions to additional taxation on the land portion of the comprehensive real estate holding tax.
• Rationalise the scope of entities subject to the prohibition on duplicate customs audits and adjust the prior notification period.
• Expand the grounds for reducing penalties for inaccurate declarations in advance customs rulings.
• Revise the method for calculating penalties on late payments made after the designated payment deadline.
• Streamline the inspection system for alcoholic beverage containers.
• Expand eligibility for government-appointed tax representatives to include those filing grievance petitions.
• Broaden the scope of recipients eligible to receive tax payment notices through regular postal service.
• Defer the monthly submission deadline for simplified payment statements for regular employees.

Restore tax burden fairness by the ability-to-pay principle

• Revert the corporate tax rate to the 2022 level.
• Revert the stock transaction tax rate on domestic stock transfers to the 2023 level.
• Revert the threshold for major shareholders liable for capital gains tax on stock transfers from KRW 5 billion or more back to KRW 1 billion or more.
• Increase the education tax rate for the finance and insurance sectors on income exceeding KRW 1 trillion.
• Rationalize the taxable scope of reduced capital reserve dividends.

Rationalise the tax system

• Streamline tax incentives by phasing out temporary support measures.
• Rationalise corporate tax benefits for cooperative entities.
• Broaden the taxable scope of the exit tax to include overseas stock holdings.
• Apply foreign tax credits to indirect investment income earned in pension accounts.
• Introduce Domestic Minimum Top-up Tax (DMTT).
• Expand the scope of liability for tax payment in kind for the Comprehensive Real Estate Holding Tax on trust assets.
• Add required documents for rectification claims related to arm’s length price adjustments.
• Strengthen the joint tax liability of purchasing agents for overseas direct purchases.
•  Expand the scope of taxation on circumvention dumping.

Prevent tax evasion and bolster the efficiency of tax collection

• Broaden the scope of inheritance tax obligors in cases of bequests to for-profit corporations.
• Introduce penalties for foreign corporations that fail to submit required reports on their liaison offices.
• Establish regulations for outsourcing the sale of seized virtual assets.
• Introduce new exclusion criteria for detention requests concerning high-amount tax delinquents.
• Include the delivery costs of tax demand notices in the late payment penalty tax.