Providing Excellence In Client Services
Newsletter
September 2013
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
„
Proposed Tax Law
Changes in 2013
and other related subjects of special interests to foreign investors.
The information provided herein should not form a basis of any
decision as to a particular course of action, nor should it be relied upon
as a substitute for a detailed advice in individual cases.
„
Korea-Hong Kong Tax
Treaty
--------------------------------------------------------------------------------------------------Please contact any of the following individuals with any inquiries or
comments.
Contacts: H.S. Kim, S.Y. 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)
Audit l Tax l Advisory
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-1-
September 2013
Proposed Tax
Law Changes in
2013
We summarized below some of the major proposed tax law changes announced by the
Ministry of Strategy and Finance on August 8 to keep you updated. We classified tax law
changes into 4 categories based on the intended purpose of tax revision. The proposed tax
law changes below would be applied for the fiscal year starting on or after January 1, 2014
unless indicated otherwise.
Ⅰ. Securing economic growth engine and supporting Small and Medium-Sized
Company
„ Expanded R&D Tax Credit (“RTC”) for R&D expenditure
Current provision
• Application for RTC
Proposed provision
• Application for RTC
- R&D related expenses incurred by
R&D laboratory or exclusive R&D
department of a company
- (Addition)
- R&D expenditure incurred by a R&D
Business (*) of R&D Service
Business(**) for its own purpose
(*) Business performing R&D on
science and engineering field
independently or on a contract
basis
(**) R&D Service Business consists of
R&D Business and R&D Support
Business
„ Expanded application of Special Tax Deduction (“STD”) for Small and Mediumsized Company (“SMC”) and Job Creation Investment Tax Credit (“JCTC”) by
allowing Knowledge Property Service Business etc. to be entitled to STD and
JCTC
Current provision
y Qualified Business type for
STD/JCTC
Proposed provision
y Qualified Business type for
STD/JCTC
- Agriculture, Livestock Industry,
Fishing Industry
- Mining, Manufacturing, Construction
- Wholesale and Retail
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September 2013
- Information Service, R&D, Social
Welfare Service, etc.
- Exhibition and Event Agency
- Exhibition Industry under the
Exhibition Industry Development
Act
- (Addition)
- Intellectual Property Service
- R&D Support Business
- Selected Social Service Business
(defined)
„ Reduced scope for deemed gift taxation on sales transaction between specially
related companies (“SRC”)
9 Ease for SMC by increasing share ownership from 3% to 5% and normal transaction
ratio from 30% to 50%
Current provision
• Condition for deemed gift taxation
- Controlling shareholder’s share
Proposed provision
• Condition for deemed gift taxation
- 3% → 5%
ownership in the beneficiary
company (“BC”) : more than 3%
- Transaction ratio between SRC :
- 30% → 50%
more than 30%
9 Expanded tax exemption on internal sales transactions between SRC
Current provision
Proposed provision
• Internal sales transaction amounts
• Internal sales transaction amounts
that are exempted from deemed gift
that are exempted from deemed gift
taxation
taxation
- Sales transaction between BC and
- (Same as left)
its subsidiary company whose
shares of 50% or more are held by
BC : Total sales amounts
- (Addition)
- Sales transaction between BC and
its subsidiary company whose
shares of less than 50% are held by
BC: Total sales amounts Ⅹ BC’s
share ownership ratio
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September 2013
- Sales transaction between BC and
- Sales transaction between BC and
its SRC whose 100% shares are
its SRC whose shares are held by
held by BC’s controlling
BC’s controlling shareholder: Total
shareholder : Total sales amounts
sales amounts Ⅹ controlling
shareholder’s share ownership ratio
in the SRC
- Sales transaction between BC and its
- (Same as left)
SRC which is between BC and BC’s
controlling shareholder (called as
“Indirect shareholder company”) :
Total sales amounts
9 Rationalized adjustment of double taxation between Gift Tax and Personal Income
Tax
Current provision
• Adjustment of double taxation
- Share acquisition cost when
Proposed provision
• Adjustment of double taxation
- (Same as left)
calculating capital gain tax from
share transfer : share purchase
price + deemed gift profit
- (Addition)
- Certain portion(*) of dividends (**)
received by controlling shareholder
from BC would be exempted from
deemed gift tax if it is subject to
personal income tax
(*) dividends Ⅹ (deemed gift
profit/distributable profit)
(**) dividends distributed up to the
due date of gift tax return filing
The proposed revisions above will be applied for the gift tax return which is due filing on or
after the effective date.
„ Uniform tax credit rate reduced to different rates depending on the company size
<Relevant Tax Credits>
y Pharmaceutical Quality Control Improvement Facilities Investment Tax Credit
y Environment Conservation Facilities Investment Tax Credit
y Energy Saving Facilities Investment Tax Credit
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September 2013
y R&D Facilities Investment Tax Credit
Current provision
- 7% ~ 10%
Proposed provision
- Large company : 3%
- Middle standing company : 4%
- SMC : 5%
Ⅱ. Improvement of fairness of taxation and expansion of tax revenue base
„ Conversion of income deduction into tax credit
9 Child care related deduction (child care deduction for having a child of 6 years of age
or under, childbirth · adoption deduction, multiple children deduction) will be
combined into Child tax credit :
Current provision
• Child care related deduction
- Child of 6 years of age or under
deduction:
KRW 1 million per child
- Childbirth · adoption deduction:
KRW 2 million per child
Proposed provision
• Child tax credit
- 2 children or less:
KRW 150,000 per child
- Over 2 children :
KRW 300,000 + (number of children
– 2)Ⅹ KRW 200,000
- Multiple children deduction:
*2 children: KRW 2 million
*Over 2 children: KRW 1 million +
(number of children – 2)Ⅹ KRW 2
million
9 Special deduction will be converted into tax credit
Current provision
- Medical expense deduction
Proposed provision
- 15% ratio of tax credit
- Education expense deduction
- Donation deduction
- Insurance premium deduction
- 12% ratio of tax credit
- Pension savings · retirement pension
deduction
- Small company · small business
person deduction
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September 2013
- Standard income deduction
- Standard tax credit
∙KRW 120,000 for a salaried taxpayer
∙KRW 70,000 for a self-employed
taxpayer
9 Changes in earned income deduction rate
Salaries (KRW)
Current provision
Proposed provision
Up to 5 million
80 %
70 %
5 ~ 15 million
50 %
40 %
15 ~ 30 million
15 %
15 %
30~ 45 million
10 %
5%
Over 45 million
5%
2%
Ⅲ. Support for culture and art promotion
„ Expanded tax deduction limit for entertainment expenses related to cultural
activities
Current provision
Proposed provision
Tax limit : Lower of ① or ②
Tax limit : Lower of ① or ②
① CEE – Total EE Ⅹ 1%
① CEE
② tax limit of EE Ⅹ 10%
② tax limit of EE Ⅹ 10%
(*) CEE: Cultural activities related entertainment expense
(*) EE: Entertainment expense
Ⅳ. Measures toward underground economy
„ Introduction of additional penalty in relation to the reporting requirements on the
information of overseas financial accounts (*)
(*) A resident Individual or a domestic company should report information of overseas
financial accounts in case its financial account balance is over KRW 1 billion.
Current provision
• Penalty assessments
- If non-reported or under-reported
Audit l Tax l Advisory
Proposed provision
• Penalty assessments
- (Same as left)
www.crowehorwath.co.kr
-6-
September 2013
amount is KRW 5 billion or less
* If non-reported or under-reported
amount exceeds KRW 5 billion,
subject to up to 2 years of
imprisonment or penalty assessment
of 10% or less
- (Addition)
- If a taxpayer fails to comply with the
tax authority’s demand to provide
explanation on the source of funds
non-reported or under-reported
(applicable only to tax residents)
• penalty amounts
- 10% or less of non-reported or
• penalty amounts
- (Same as left)
under-reported amount
- (Addition)
- 10% of unexplained amounts on the
tax authority’s demand for document
of proof
„ Reduced threshold for compulsory issuance of Electronic Receipt Slips for cash
transactions
Current provision
Less than KRW 300,000
Korea-Hong
Kong Tax
Treaty
Proposed provision
Less than KRW 100,000
Agreement on Korea-Hong Kong Tax Treaty
The Ministry of Strategy and Finance had meetings to conclude the Korea-Hong Kong Tax
Treaty during September 11th - 13th in Hong Kong and agreed and signed a provisional
Korea-Hong Kong Tax Treaty.
The main contents of the agreement of the Tax Treaty are as follows.
„ Exchange of taxation information
The government of Korea and Hong Kong agreed to exchange taxation information for a
suspected tax evader of respective country. Especially, the taxation information covers
information that financial institutions hold and past information that each government holds.
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September 2013
„ Reduced withholding tax rates
Dividends: 10% [ 15% if the ownership ratio is less than 25%]
Interests: 10%
Royalties: 10%
The foregoing Tax Treaty will become effective after the formal agreement of both countries
and ratification of the National Assembly.
*
*
*
*
*
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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