Changes in local tax rates and
International tax revisions by OECD BEPS project for foreign-invested companies
in Korea
☞ The following tax information is translated from Korean for foreign-invested companies in Korea, and is not legally binding.
※ Major revisions in tax laws in 2018 – Part 1 (to be continued next month)
□ Corporate tax rate and Income tax rate raised
○ Corporate tax rate bracket added for tax base exceeding 300B won: 22% → 25%
Tax base
|
Current tax rate
|
Revised tax rate
|
Not over 200M won
|
10%
|
(No change)
|
Over 200M won-Not over 20B won
|
20%
|
(No change)
|
Over 20B won-Not over 300B won
|
22%
|
(No change)
|
Over 300B won
|
25%
|
* For comparison, the average corporate
tax rate of G20 member states is 25.7%.
○ Adjustment of maximum tax rate for
Income tax (40% for tax base exceeding 500M won
→ 40% for tax base exceeding 300M won, 42%
for tax base exceeding 500M won)
Tax base
|
Current tax rate
|
Revised tax rate
|
Not over 12M won
|
6%
|
(No change)
|
Over 12M won-Not over 46M won
|
15%
|
|
Over 46M won-Not over 88M won
|
24%
|
|
Over 88M won-Not over 150M won
|
35%
|
|
Over 150M won-Not over 300M won
|
38%
|
(No change)
|
Over 300M won-Not over 500M won
|
40%
|
|
Over 500M won
|
40%
|
42%
|
* Excluding countries adopting a flat tax
rate system (five eastern European countries) and countries with a low portion
of national tax such as federal states (five countries including Swiss), the
average Income tax rate of the remaining 25 OECD state members is 41.9% (47.1%
including local tax).
Reason for revision: To enhance fair
taxation and promote redistribution of profit
Applicable period: Effective from the
business year commencing on or after Jan. 1, 2018
□ Non-inclusion of expenses related to
“Hybrid Financial Products" in deductible expense
1. Transactions to which the restrictions
apply
1-(1) Restricted transactions :
International transactions between a domestic company (including the domestic
place of business of a foreign company) and its overseas special related party
using hybrid financial products
1-(2) Hybrid Financial Product : A product
that can be considered both debt and capital at the same time (e.g.,
participating bond). Such product is treated as debt in one country and deemed
capital in another country.
* Excluding products issued by a financial
institute for capital increase purposes
1-(3) The restrictions apply if all or
part of the payments for which expenses are deducted is not taxed at the
transaction counterpart country within a certain period*.
* Until the last day of the recipient’s
business year commenced within 12 months of the last day of the payer’s
business year
2. Non-inclusion in deductible expense
The amount that is not taxed in the
transaction counterpart country is not recognized as deductible expense.
3. Procedure for tax filing
3-(1) Corporate tax is filed by
excluding the payment from the business year’s deductible expense:
- However, if the payment excluded from
deductible expense is included in the transaction counterpart’s taxable income*
within a certain period, the payment can be included in deductible expense when
filing a corporate tax return for the business year to which the last day of
such period falls.
* The taxpayer is responsible for
submitting documentary evidence.
3-(2) Where corporate tax is filed by
including the payment in the business year’s deductible expense but the payment
is not taxed within a certain period in the country in which the recipient
resides:
- The payment is included in profit when
filing corporate tax for the business year to which the last day of the period
belongs (the amount equivalent to interest shall be included as well).
Reason for revision : To prevent tax
evasion using the difference between tax laws in two countries.
* OECD BEPS project recommendation (Action
2)
Applicable period : From the business year
commencing on or after Jan. 1, 2018.
☞ Source: Korean National Tax
Service
