South Korea Introduces Tax Measures to Boost Investments

Despite production and consumption steadily improving in South Korea, investment has yet to pick up due to sluggish exports, and the job market will likely be negatively affected by the industrial restructuring and external uncertainties, such as China’s economic slowdown and Brexit.

Against this backdrop, the government drew up the 2016 Tax Revision Bill which focuses on stimulating the economy and improving people’s livelihoods, while pursuing fair and rational taxation.

To promote investment, the government is introducing a 5 percent corporate tax credit for investment in ventures. Individual investors who invest in PEFs which finance ventures will also be given tax incentives.

The government also raised the ceiling of the stock option tax break from 100 million won a year to 500 million won for three years to help attract talented human resources.

The shipping industry is also being given a break.  Shipping companies will be allowed not to apply the tonnage tax for the 2016 and 2017 business years. 

South Korea is also expanding the tax support for corporate restructuring. Requirements for tax deferrals due to spinoff or in-kind investment will be eased that parent companies need to meet the more than 50 percent holding requirement for only 3 years. 

Asset losses associated with M&As will be counted as expenses if they are not built-in losses. Taxes will be deferred on capital gains from a merger between overseas subsidiaries if the taxes have been deferred in the foreign country.

The government has also announced the extension of the special tax advantage given to high-risk and high-yield trust funds until the end of 2017, which is aimed at helping SMEs issue corporate bonds.

Reduce international tax evasion

Meanwhile, multinational enterprises will be required to submit the country-by-country report in accordance with the OECD BEPS project for the 2016 business year by the end of 2017.

The government will impose a 20 percent capital gains tax on shares owned by large shareholders regardless of the sales of the shares on the date when they become nonresidents due to such as emigration, which will be effective from January 2018.

Gift taxes will also be imposed on givers instead of recipients if the givers are residents and recipients are nonresidents, and the gifts are foreign assets.

Taxes will also be imposed on technical services that are provided overseas by a foreign company if the payments are made in Korea according to tax treaties.

Multinational companies will still be subject to taxes after they withdraw their advance pricing agreement applications, for as long as a year.



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