Amendment to tax laws 2024
On December 10, 2024, the National Assembly approved the tax reform bill proposed by the Ministry of Economy and Finance (“MOEF”) earlier in July. While some provisions were repealed, leaving the current system unchanged, key reforms related to international taxation were passed and are anticipated to influence the corporate sector significantly.
Part 1. Corporate Income Tax:
Reform of Integrated Employment-Related Tax Credit system.
1. Restructuring of Support Methods by Employment Type
The proposal aimed to expand the scope of beneficiaries and reorganize the support system by type to promote job creation and reduce compliance costs. However, this proposal was repealed, and the current system will remain in place.
| Category | Proposed Amendment | No change in Acts in force |
| Eligibility | Regular employer, including those with employment contracts of less than one year and part-time workers (for less than 15 hours per week) | Regular employer, excluding those with employment contracts of less than one year and part-time workers (for less than 15 hours per week) |
| Credit amount | Increased retention credit amounts and introduction of flexible employment rate-based support.
Continuous employment 1. For young adults in full-time positions, disabled workers, employees aged 60 or older, career-interrupted women etc. 1) SME (Small and mid-size enterprises): 2) Middle scale: KRW 12 million 3) Large enterprises: KRW 4 million 2. For other regular employees: 1) SME: 2) Middle scale: KRW 7 million 3) Large enterprises: N/A
Flexible employment 1. For payroll growth between 3% and 20% 1) SME: 20% of the increase 2) Middle scale: 10% of the increase 3) Large enterprise: N/A 2. For payroll growth exceeding 20% 1) SME: 40% of the excess increase 2) Middle scale: 20% of the excess increase 3) Large enterprises: N/A
| 1. For young adults in full-time positions, disabled workers, employees aged 60 or older, career-interrupted women etc. 1) SME (for 3 years): 2) Middle scale (for 3 years): KRW 8 million 3) Large enterprise (for 2 years): KRW 4 million 2. For other regular employees: 1) SME (for 3 years): 2) Middle scale (for 3 years): KRW 4.5 million |
2. Abolishment of Post-Compliance and Simplification of Employment Support Programs
As part of an effort to promote job creation and reduce taxpayer compliance costs, a proposed amendment aimed at simplifying employment support programs through measures such as abolishing post-compliance and integrating employment support. However, this government proposal was repealed, and the current system remains unchanged.
| Category | Proposed Amendment | No change in Acts in force |
| Post-Compliance | Additional tax credits for one year if the number of retained employees is maintained or increased (post-compliance abolished). - Reduction in tax credits for decreases in young adults or specific employee categories, even if total retained employees increase. - For decreases due to parental leave, only the relevant credit amount is reduced. | - Employment retention obligations for a specific period (2-3 years after the first year of tax credit). - Recapture of tax credits equivalent to the credited amount in case of a decrease in employment |
| Additional Tax Credits | Merged with basic tax credits (to expire upon reaching the application deadline) - Support of up to KRW 48 million for two years through employment retention. | Credit amount 1. Conversion to full-time employment (1 year support) 1) SME: KRW 13 million 2) Middle scale: KRW 9 million 2. Return from parental leave (1 year support) 1) SME: KRW 13 million 2) Middle scale: KRW 9 million |
| Expiring date | Merged with basic tax credits (to expire upon reaching the application deadline) - Support of up to KRW 48 million for two years through employment retention | 1. Conversion to full-time employment: December 31, 2024 2. Return from parental leave: December 31, 2025 |
| Employment Increase Criteria | Minimum employment increase requirements: - Middle scale: 10 employees - Large enterprises: 20 employees | No minimum employment increase requirements |
Part 2. Law for Coordination of International Taxation Affairs (LCITA)
1. Rationalization of Excessive Interest Deduction Limits Relative to Income
An amendment to adjust the scope of exclusions from the non-deductible interest rules was approved to prevent tax avoidance through international transactions.
| Category | Proposed Amendment | Approved (Amendment Approved) |
| Scope of Application | Domestic corporations borrowing from foreign related parties - Financial holding companies exempt, general holding companies subject to non-deductible interest rules. | Domestic corporations borrowing from foreign related parties - Financial holding companies exempt, general holding companies subject to non-deductible interest rules |
| Non-Deductible Amount | Net interest expense exceeding 30% of adjusted taxable income - Adjusted taxable income: income before deducting depreciation and net interest expenses. | Net interest expense exceeding 30% of adjusted taxable income - Adjusted taxable income: income before deducting depreciation and net interest expenses. |
The updated rules will take effect for interest expenses incurred in taxable years starting on or after January 1, 2025.
2. Mandatory Filing of Non-taxable/Exemption Applications and Payment Statements for Domestic Sourced Personal Service Income
Mandatory Filing of Non-taxable/Exemption Applications and Payment Statements for Domestic Sourced Personal Service Income.
| Category | Proposed Amendment | Approved (Amendment Approved) |
| Non-taxable/Exemption Application | Exemption from filing applications for domestic-sourced business income. | Exemption from filing applications for domestic-sourced business income. |
| Payment Statement Filing Obligation | Exempt income includes - Income attributable to domestic business establishments, real estate income, and income exempt under tax treaties. - Business Income sourced from domestic operations | Exempt income includes - Income attributable to domestic business establishments, real estate income, and income exempt under tax treaties - Business Income sourced from domestic operations |
The updated rules will take effect on payments made on or after January 1, 2026.
3. Rationalization of Tax Refund Claims Based on Arm’s Length Price Adjustments
An amendment to streamline tax refund claim procedures for establishing appropriate taxation for international transactions was approved.
| Category | Proposed Amendment | Approved (Amendment Approved) |
| Deadline | Tax refund claims to follow the timeline specified in the Basic National Tax Act. | Tax refund claims to follow the timeline specified in the Basic National Tax Act. |
| Required Documents | - Statement on the adjustment of transaction prices - Supporting documents proving the appropriateness of the transfer pricing method, as prescribed by the MOEF. | - Statement on the adjustment of transaction prices - Supporting documents proving the appropriateness of the transfer pricing method, as prescribed by the MOEF. |
| Processing Deadline | Tax authorities to process claims within 6 months from the date the amended tax return if filed. | Tax authorities to process claims within 6 months from the date the amended tax return if filed. |
| Supplementation Period | - Tax authorities may request supplementary documents within 30 days if the initial submission is incomplete. - The supplementation period is excluded from the refund claim processing timeline. | - Tax Authorities may request supplementary documents within 30 days if the initial submission is incomplete. - The supplementation period is excluded from the refund claim processing timeline. |
The updated rules will apply to tax refund claims filed on or after January 1, 2025.
Part 3. Inheritance and Gift Tax Act
Abolishment of Premium Valuation on Shares Held by Major Shareholders
A proposal to abolish the premium valuation applied to shares held by major shareholders, aimed at supporting business succession, was introduced but ultimately rejected. As a result, the current system remains unchanged.
| Category | Proposed Amendment | No change in Acts in force |
| Principle | Abolishment of premium valuation on shares held by major shareholders. | A 20% premium is added to the assessed value of shares held by major shareholders*. *Major shareholders, major investors, and related parties [Excludes SMEs and Middle scale enterprises (with annual revenue below KRW 500 billion)]. |
| Exceptions | The following categories are exempt from the premium valuation: 1. Shares issued by SMEs or Middle scale enterprises with annual revenue below KRW 500 billion. 2. Corporations that have incurred tax losses in any of the three fiscal years preceding the valuation date. 3. Cases where all shares held by major shareholders are sold within six months before or after the valuation date. 4. Corporations established for less than three years and that have incurred operating losses in all fiscal years. 5. Corporations confirmed to be liquidated within the inheritance or gift tax filing period. 6. When shares held by major shareholders are inherited or gifted to a party who does not become a major shareholder because of the transaction. |
Want to know more?
Sang-An Jeong Partner, Head of Tax - Seoul
