Providing Excellence In Client Services
November 2012
Newsletter
Bi-monthly Newsletter of Horwath Choongjung LLC
Contents
This newsletter is prepared and issued by Horwath Choongjung LLC
(Choongjung Accounting Corp.) on a bi-monthly basis and intended to
provide foreign investors with an update on tax law changes in Korea
2013 Tax Law Changes
and other related subjects of special interests to foreign investors.
The information provided herein should not form a basis of any
Amendments to the
Porposed Tax Law
Changes in 2013
decision as to a particular course of action, nor should it be relied upon
as a substitute for a detailed advice in individual cases.
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New Tax Rulings
VAT invoice issuer in case
goods and services
provider is not the
payment recipient
VAT treatment on joint
technology development
with a foreign (nonKorean) company
Please contact any of the following individuals with any inquiries or
comments.
Contacts: H.S. Kim or G.S. Sim at Tax&BPO Services of Horwath
Choongjung [Tel: (82)(2) 316-6600, Fax: (82)(2) 775-5885, E-mail:
post@crowehorwath.co.kr]
(You may find this newsletter and other items of interest at
http://www.crowehorwath.co.kr)
Withholding tax rate on
royalty paid for the use of
international
telecommunication
network owned by a
Singaporean company
Audit l Tax l Advisory
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November 2012
2013 Tax Law
Changes
Amendments to the Proposed Tax Law Changes in 2013
Several amendments have been made to the proposed tax law changes released
by the Ministry of Strategy and Finance in August 2012 after gathering opinions
through pre-announcement of draft bills and discussions with other governmental
bodies. The amendments will become effective from January 2013 if those
amendments are sanctioned by the National Assembly. We summarized below
some of the major amendments made to the proposed tax law changes in 2013 to
keep you updated.
R&D tax credit formula – changes in meaning of immediately preceding year
(Article 10 of the Special Tax Treatment Control Law (“STTCL”))
Original proposal
Amended proposal
□ Tax credit amounts
□ “R&D expenses incurred in the
= (R&D expenses incurred in the current
immediately preceding year” will be
year
changed as below.
–
R&D
expenses
incurred
in
immediately preceding year) × 40% (50%
Annual average R&D expenses incurred
for small and medium-sized company)
in the preceding four years (For 2012)
→ Annual
average
R&D expenses
incurred in the preceding three years
(For 2013) → Annual average R&D
expenses incurred in the preceding two
years (For 2014) → R&D expenses
incurred in immediately preceding year
(From 2015)
Audit l Tax l Advisory
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November 2012
Changes in conditions for income tax deduction on long-term fund
(Article 91-15 of the STTCL)
Original proposal
Amended proposal
□ Individuals eligible for income tax
□ Changes in conditions for income
deduction on long-term fund :
tax deduction on long-term fund :
- Employee with payroll income of KRW
① If determine eligibility as of the initial
50 million or less
join date : Employee with payroll income
- Individual businessman with total income
of KRW 50 million or less, individual
of KRW 35 million or less
businessman with total income of KRW
35 million or less
② If determine eligibility as of the year
the deduction is actually to be applied
(during
the
tax year
concerned)
:
Employee with payroll income of KRW
80
million
or
less,
individual
businessman with total income of KRW
60 million or less
Cancellation of the proposed retirement income deduction and maintaining current
provision (Article 48 of the Individual Income Tax Law)
Original proposal
□
Audit l Tax l Advisory
Proposed
retirement
Amended proposal
income
□
Maintaining
current
retirement
deduction
income deduction
① Flat deduction rate: 50% of retirement
①
income
retirement income
② Deduction by the length of service:
② Deduction by the length of service :
abolished
remains unchanged
Flat
deduction
rate
:
40%
of
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November 2012
Declaration of overseas financial accounts – changes in computation method of
maximum balance threshold amounts (i.e., KRW 1 billion)
(Article 34 of the International Tax Coordination Law)
New Tax
Rulings
Original proposal
Amended proposal
□ Sum up balances of all overseas
□ Sum up balances of all overseas
financial accounts as of the end of every
financial accounts as of the end of every
quarter
month
(effective from January 1, 2012)
(effective from January 1, 2013)
1. VAT invoice issuer in case goods or services provider is not the
payment recipient (Buga-499, 2012.5.4)
If a domestic company enters into goods or services agreement with a foreign
(non-Korean) company outside of Korea and makes payments directly to the
foreign company, but receives goods or services from the Korean branch of the
foreign company, the Korean branch of the foreign company is required to issue
VAT invoices to the domestic company.
2. VAT treatment on joint technology development with a foreign (nonKorean) company (Buga-970, 2012.9.24)
In the case where a Korean company (“company A”) makes an agreement with a
foreign company without a permanent establishment in Korea (“company B”) to
collaborate on technology development in Korea and they jointly possess the right
for the development output and the development costs are allocated to the
company A and the company B according to their ownership ratio of the
development output, if the company A receives input VAT invoices on goods and
services needed for the technology development from other domestic taxpayers,
the input VAT portion for the company B shall not be deductible from output VAT of
the company A. In this connection, when the company A receives payments of
technology development related costs allocated according to their ownership ratio
from the company B, the company A shall not issue any VAT invoice to the
company B and the payments received shall not be included in the VAT tax base of
the company A.
Audit l Tax l Advisory
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November 2012
3. Withholding tax rate on royalty paid for the use of international
telecommunication network owned by a Singaporean company
(Gukjesewon-409, 2012.9.4)
In the case where a Korean company makes a payment to a US company for the
use of international telecommunication network owned by a Singaporean company
without a permanent establishment in Korea and the US company acts as a
Singaporean company’s agent for making contract and receiving payment from the
Korean company for the services rendered by the Singaporean company, the
payment to the US company will be classified as royalty income under Article 12 of
the Korea-Singapore tax treaty and the withholding tax rate of 2.2% (including local
income tax) shall be applied when the Korean company makes the payment in
accordance with Article 98, Paragraph 1, Subparagraph 1 of the Corporate Tax
Law.
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Horwath Choongjung LLC
Member Crowe Horwath International
PMAA Jaram Building, 16th Floor, 566 Dohwa-dong,
Mapo-gu, Seoul 121-815, Korea
TEL: (82)(2) 316-6600 FAX: (82)(2) 775-5885 E-mail: post@crowehorwath.co.kr
Website: http://www.crowehorwath.co.kr
Horwath Choongjung LLC is a member of Crowe Horwath International, a Swiss association. Each member firm of Crowe Horwath International is a
separate and independent legal entity. Horwath Choongjung LLC and its affiliates are not responsible or liable for any acts or omissions of Crowe Horwath
International or any other member of Crowe Horwath International and specifically disclaim any and all responsibility or liability for acts or omissions of
Crowe Horwath International or any other Crowe Horwath International member.
Audit l Tax l Advisory
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