Korea, Republic of
As the growth momentum in Korea has slowed due to the slowdown and rising uncertainty in the global economic environment, the Korean tax reform for 2020 includes a package of measures aimed at revitalising the economy. They focus on: (i) expanding tax benefits aimed at promoting certain facility investment and start-ups of small and mid-size enterprises (SMEs); (ii) temporarily increasing or extending the existing tax reduction or exemption to boost individual consumptions and the private sector’s spending; and (iii) expanding research and development (R&D) tax credits for core technology and new-growth engine business sectors. Addressing the government’s commitment to achieve social and economic fairness and inclusiveness, the latest tax reform includes measures to raise the revenue sources to finance government programmes associated with it. For example, the wage and salary income tax exemption limit is introduced with a cap of 20 million Korean won (KRW), effective 1 January 2020. Also, as part of the effort to secure the taxing rights for payment by a domestic entity to a foreign holder of patents registered outside Korea, an amendment to the tax law has been made to provide a legal framework for taxation of such payment in Korea. In addition, the existing tax reduction and exemption schemes are rationalised to curtail an increase in fiscal expenditures.
Korean tax measures in response to the COVID-19 crisis
In a volatile economic environment with the unprecedented challenges of the COVID-19 crisis, the Korean government announced a series of measures to boost individual consumptions and the private sector’s economic activities. These measures include the following (as of 14 April 2020):
- With respect to store or commercial building rent reduction for micro businesses from 1 January 2020 to 30 June 2020, an amount equal to 50% of the rent reduction will be credited against its individual or corporate income tax.
- For SMEs in a designated disaster area, individual or corporate income tax on the income earned by the SMEs from the business places located in such area will be reduced by up to 60% (i.e. 60% for small-sized company and 30% for medium-sized company) for the year that 30 June 2020 belongs to. The income tax reduction will be capped at KRW 200 million unless the number of full-time employees decreases from the preceding year.
- For small sole proprietors (with annual revenue of KRW 80 million or less), the government will reduce their value-added tax (VAT) liabilities by applying a simplified VAT payment scheme until 31 December 2020.
- The simplified VAT payers having the annual supply price (i.e. revenue) of KRW 30 million or more but less than KRW 48 million would be exempt from VAT payment for the supply of goods or services until 31 December 2020.
- Individual consumption tax on motor vehicles will be reduced by 70% for shipment from a manufacturing site or imports from 1 March 2020 to 30 June 2020. The tax reduction will be capped at KRW 1 million.
- The government has doubled income tax deductions on individual spending (which exceeds 25% of total employment income during a year) between March and June 2020 by raising the deduction rates to: (i) 30% (from 15%) for spending by credit cards; (ii) 60% (from 30%) for spending in cash or by debit cards; and (iii) 80% (from 40%) for spending on traditional markets and public transportation. The government announced it would further raise the deduction rates on credit or debit card spending to 80% in respect of purchases for the most affected businesses between April and June 2020. They include restaurants and hotels, tourism, performance show-related businesses, airlines and other passenger transportation, etc.
- Tax deductible entertainment expenses are limited to the amount equal to a certain percentage of sales revenue. For entertainment expenses spent between January and December 2020, higher percentage rates will apply: (i) 0.35% (from 0.3%) for sales revenue of up to KRW 10 billion; (ii) 0.25% (from 0.2%) for sales revenue of more than KRW 10 billion but not exceeding KRW 50 billion; and (iii) 0.06% (from 0.03%) for sales revenue of more than KRW 50 billion.
- The NTS plans to significantly reduce the scope of tax investigation targets to help companies focus on coping with economic difficulties in the COVID-19 crisis. The number of companies subject to NTS audit will be reduced from 16,008 in 2019 to 14,000 in 2020. The level of post-filing verifications of corporate income tax, VAT and other major tax returns will be reduced by 20%, compared to the level of the last year. Periodical tax audits will be conducted in an approach to increase the predictability for taxpayers, while simplified audits with a focus on providing useful consulting will be expanded to ease administrative burden on taxpayers. Applications for the postponement or suspension of tax audits will be considered in support of taxpayers affected by the COVID-19 crisis.
For the latest updates on Korean tax measures, please refer to the latest COVID-19 tax, legal, and economic response by territory at www.pwc.com/gx/en/services/tax/navigate-the-tax-measures-in-response-to-Covid-19.html