On 25 July 2019, South Korea’s Ministry of Economy and Finance (MOEF) has issued an overview of the proposed 2019 Tax Revision Bill to raise tax credit rate for corporate facility investments, R&D. The bill mainly focuses on boosting the economy and supporting industrial innovation.
Summary of the 2019 tax revision bill are as follows:
Promote investment and Support industrial innovation
To promote investment and support industrial innovation Korea proposes following measures:
- Temporarily raise the tax credit rate for facility investments from the current 1 percent to 2 percent. The hike will be effective next year, if the parliament passes the bill by the end of 2019.
- The rate for small and medium-sized businesses will also be raised to 10 percent from the current 7 percent.
- Extend the 50 percent accelerated depreciation by six months to June 30, 2020, and expand it to investments made over the second half to improve productivity and save energy in addition to the investments made to foster innovation, such as R&D facilities investment and new growth engine facilities investment
- Extend the corporate tax reduction for startups doing business in restructuring-affected areas: Two years of 50 percent reduction in addition to 100 percent reduction for five years currently provided
- Expand the corporate investment tax reduction to 5 percent for SMEs and 3 percent for medium-sized leading enterprises if they are doing business in regulation-free zones
- Extend the tax reduction carry-over to the next 10 years, which is given to R&D investment in new growth engines and source technologies
- Provide R&D tax reduction to foreign research institutes for projects commissioned by Korean companies
- Raise the ceiling of the capital gains tax exemption for stock options exercised by venture employees from 20 million won a year to 3 million won a year
- Expand the capital gains tax exemption given to venture capital from the sales of old stocks to the sales of new stocks
- Provide a 50 percent income tax cut for five years to Korean talents returning from overseas
Broadening the tax base and improving the tax system
To broadening the tax base and improving the tax system Korea proposes following measures:
- Lift the gift tax progressive rates imposed on largest shareholders’ stocks
- Give opportunities to adjust taxable income to those filing past the income report due
- Lower penalties imposed on unreported overseas financial accounts
- Make tax-free savings accounts not available to those who have ever paid capital gains taxes on their financial income over the last three years
The bill will then be submitted during the regular session of the National Assembly on 3 September 2019 and effective for fiscal years beginning on or after 1 January 2020.
