News

Korean Tax Newsletter (May 2024)

Creating the future, together

Korean Tax Newsletter is a monthly publication of Deloitte Anjin LLC. We hope you will find useful information in this newsletter.

▲ Revisions to tax laws

The Ministry of the Interior and Safety made a pre-announcement of legislation (April 19 to May 9), indicating there will be amendment to the Local Tax Enforcement Decree and Enforcement Rules as follows:
A. Released from Imposition of Heavy Taxation on Acquisition Tax for Corporate Restructuring REITs

Under the current law on acquisition tax, in the case where Corporate Restructuring REITs purchase unsold apartments after local completion, the higher acquisition tax rate of 12% shall apply. Under the proposed revision, there will be reduction in the tax rate (1~3%, respectively). The revision will take effect for the tax year starting from March 28, 2024.

B. Clarification of the Special Aggregation Taxation Standard for the land annexed to Demolished or Lost Buildings.
C. Introduction of a Standard to place a cap amount on the taxable income for the house property tax.

▲ Tax Authorities News

Key highlights from the 3rd quarter of 2023 tax statistics

The National Tax Service (NTS) has released a set of tax statistics for the 3rd quarter in its National Tax Statistics Portal. During this quarter, 76 corporate tax statistics have publicly been announced and here are some of the key highlights.

  1. Increased tax filings in 2021
    In 2021, approximately total of 906,000 corporate income tax filings have been made, increase of 8.1% compared to the previous year. When categorized by industry, companies in the service sector such as software development accounted for the majority with 200,000 tax returns filed, followed by manufacturing of 178,000 returns and wholesale trade of 167,000 returns. When categorized by geography, metropolitan areas of Seoul, Gyeonggi, and Incheon comprised of 59.9% or 543,000 of the total corporate income tax filings, and there were 23 districts with more than 10,000 corporate income tax filings. 

  2. Corporate charitable contributions and entertainment expenses in 2021
    According to the filed 2021 corporate income tax returns, corporate charitable contributions amounted to KRW 5.3 trillion KRW, an increase of 1.9% compared to the previous year. Entertainment expenses, on the other hand, decreased by 2.6% to KRW 1.14 trillion.

  3. Increased claims of corporate tax credits and reductions in 2021
    The number of corporations that claimed tax credits and reductions in 2021 increased by 8.3%, amounting to 380,000 corporations. However, the amount of claimed tax credits and reductions were KRW 9.9 trillion, which is a 5.7% decrease from the previous year, influenced by a decrease in foreign tax credits paid.

    When examining the statistics of claimed corporate tax credits by entity types, for small and medium sized enterprises (SMEs), the most substantial tax credits was for research and development and labor development expenses, total KRW 1.23 trillion, followed by tax credits for increased employment amounting to KRW 900 billion. For general corporations, the most substantial tax credits claimed was for foreign tax credits of KRW 2.28 trillion, and research and development tax credit of KRW 1.34 trillion.

    Regarding the tax reductions applicable to the SMEs, the largest reduction was the special tax reduction for SMEs, amounting to KRW 953.4 billion. This was followed by reductions for start-up SMEs as well as reductions for COVID relief in special disaster areas, which totalled at KRW 257.4 billion and KRW 132.6 billion, respectively. For general corporations, the tax reduction for relocation of their head offices to non-metropolitan areas outside of Seoul accounted for KRW 2.888 trillion, which constituted 73.1% of the total reductions for general corporations.

  4. Status of virtual assets held abroad
    During 2023, 1,432 individuals reported a total of KRW 131 trillion of virtual assets held abroad, which amounts to 70.2% of total assets held under foreign financial accounts.

    According to the NTS this year, a total of 5,149 individuals reported overseas financial accounts, amounting to KRW 186.4 trillion. This represents a significant increase in both the number of reporting (38.1% increase) as well as reported amounts (191.3% increase) compared to the previous year. It is believed that such substantial increase is attributable to the newly implemented foreign reporting requirements for the inclusion of virtual assets.

    In terms of foreign assets held, 854 corporations reported a total of KRW 162.1 trillion, which is an increase of 107 (increase of 14.3%) reporting entities and an increase of KRW 120.5 trillion won (increase of 289.7%). For individuals, 4,565 individuals reported a total of KRW 24.3 trillion in foreign assets. The number of reporting individuals increased by 1,388 (43.7%) compared to previous year, and the reported amount increased by KRW 190 billion (8.5%). Distinguishing by age group, those in their 30s held the highest average amount of foreign assets at KRW 946 million, followed by those aged 20 and under (KRW 799 million) and those aged 60 and above (KRW 484 million).

    In terms of foreign virtual assets, 92% (KRW120.4 trillion) of the virtual assets reported were held by 73 virtual currency or crypto currency developing firms. A total of 1,359 individuals declared KRW 10.42 trillion in overseas virtual assets, resulting an average declaration of KRW 7.66 billion per person. By age group, those in their 30s reported the highest amount of KRW 6.75 trillion (64.9%), with an average declaration of KRW 12.38 billion per person. Those in their 20s and under had the second-highest average declaration at KRW 9.77 billion per person.

    Furthermore, NTS announced that it will rigorously examine virtual assets held overseas by utilizing international information data exchange and take strict actions against those who fail to report by imposing fines, issuing notifications, initiating criminal prosecution, disclosing the list of violators, and collecting related taxes in the future. 

▲ Rulings and cases 

A. In the case where a statute of limitation for the corporate income tax refund claim has expired, can a company still file the local corporate income tax refund claim?  (Josim 2023 Ji 4145, 2024.3.26., Withdrawn)

According to the Local Tax Act, the head officer of a local tax authority is empowered to determine or adjust a taxable base for LIT if an adjustment proves to be necessary and the need for such adjustment is supported by the relevant documents. Hence, if the officer discovers any error or omission in the taxable base which has been filed, the head officer of a local tax jurisdiction, on its own initiative regardless of whether the CIT base has been adjusted or not, may determine or adjust the taxable base whose deadline for a revised return has not yet expired. 

B. In the case where i) a company has its customer insured as a beneficiary for unexpected loss or damage to the company’s product sold to the customer; ii) the company pays insurance premium collected from the customer to the insurance company, and; iii) the company receives the insurance payment from the insurance company in the event of unexpected loss or damage, the insurance premium received from the customer falls under the VAT-able transaction category. (MOFE VAT tax department-266, 2024.4.12.)  

C. NOLs incurred by a previous tax consolidated group may be utilized against income of a newly consolidated subsidiary. However, the newly joined subsidiary’s NOLs that incurred prior to the consolidation may not be utilized against the original consolidation group’s income but only against the subsidiary’s. (Seomyun-2022-Bubin-2206,2023.10.11)
D. In the case where a holding company under the Fair Trade Act (“FTA Hold Co”) makes a loan to its foreign subsidiary in order for the subsidiary to acquire a foreign company’s shares, such loan may not fall into non-business purposes loan, provided that i) such funding activity of the FTA Hold Co is consistent with its business purposes, and ii) such funding is properly used for its original purposes. In addition, the issue of whether the loan falls under the non-business purposes loan should be determined based on a factual judgement to be comprehensively made considering all relevant facts and circumstances. (Seomyun-2023-Bubgyububin-2120, 2024.4.22.)
E. Under the Act on Restrictions on Special Cases concerning Taxation, the investment made in solar power infrastructure by a domestic solar power corporation shall be eligible for the Integrated Investment Tax Credit. (Seomyun-2023-Bubgyububin-2120,2024.4.22.)

Contacts

If you have any questions regarding the above information, please contact the provided contact information below, and we will be happy to assist you with a response.

Tax Partner, Scott Oleson | scoleson@deloitte.com
Tax Partner, Young Pil Kim | youngpkim@deloitte.com

Did you find this useful?