Korean Tax Newsletter (May, 2020)

▲ Revisions of Tax Laws

On 26 May 2020, The Korean National Assembly passed amendments to enforcement decrees of the Special Tax Treatment & Control Law.

The major changes are summarized below.

1. New income tax credit for corporations making prepayments for goods and services (Enforcement Decree §99-11) 

• The following industries are not eligible for the income tax credit: real estate rental and leasing, entertainment, finance and insurance, and professional (legal and accounting) services.
• Cash, credit/debit/prepaid cards, and any other electronic payment instrument are acceptable methods of prepayment.
• Prepaid goods and services not provided due to the closure of a small business may be included in the calculation of the credit.
• The tax credit application form along with the supporting documents listed below should be filed with the income (corporate) tax returns.
  
  • Proof of prepayment (i.e., a receipt, sales slip, or tax invoice);
  • A statement of prepayment described in the enforcement decree issued by the Ministry of Strategy and Finance; and
  • A prepayment certificate from SEMAS (Small Enterprise and Market Service). 
     

2. Special refunds granted for SMEs (Enforcement Decree §7-3)

• SMEs and sole proprietors are eligible for early provisional tax refunds on the following losses incurred during the first half of fiscal year 2020 (refund period):
  
  • SMEs: Net loss incurred during the refund period.
  • Sole proprietors: Net loss incurred during the refund period calculated without taking into account salary, pension, interest and dividend income.
    
• The early provisional tax refund request form should be filed within two months after the end of the refund period.
• The amount of provisional tax refund required to be recollected will be subject to interest of 0.025% per day, calculated as from the day after the date the “tax refund notice” is issued until the date the “tax recollection notice” is issued.
  

▲ News from tax authority

NTS introduces “My Tax Reminder” service

• The National Tax Service began providing “My Tax Reminder” on its “HomeTax” website starting 11 May 2020. This service allows taxpayers to access their tax filing and payment schedules more easily and conveniently.
  
  • Taxpayers are able to check their tax return filing schedule, refund schedule, and payment details in “My Tax Reminder” upon logging into HomeTax.
  • The information provided in “My Tax Reminder” is also available in the HomeTax  website’s  tax calendar view.
    
• “Direct message” service is newly available and allows taxpayers to directly contact their assigned Tax Officer.
  
  • Taxpayers can access messages sent by the Tax Officer and reply if necessary.
    

Tax administrative support measures for taxpayers affected by COVID-19

• The National Tax Service has announced the following tax administrative support measures for individual taxpayers affected by COVID-19:
  
  • An extension of the income tax payment due date to 31 August 2020;
  • A three-month filing due date extension for taxpayers or paid preparers that are affected by COVID-19;
  • An extension of the filing due date to 30 June 2020 for presidentially declared disaster areas (i.e., Daegu, Kyungbook Kyungsan, and Chungdo Bonghwa (declared 15 March 2020);
  • An additional extension past the extended due date if the COVID-19 pandemic continues; and
  • A waiver of tax payment guarantee deposits for taxpayers with an automatic extension, and a waiver of tax guarantee deposits for tax payments up to KRW 100 million for taxpayers with a voluntary extension.
    
• The Ministry of the Interior and Safety has extended the filing and payment due dates for local income tax in the same manner as for the national individual income tax. 
  

Capital gains tax administrative support measures for taxpayers affected by COVID-19

• The NTS has announced the following tax administrative support measures regarding capital gains tax for taxpayers affected by COVID-19:
  
  • Directly affected taxpayers: Confirmed or quarantined patients, businesses and SMEs affected by the shut-down are eligible for automatic extensions to 31 August 2020 for 2019 capital gains tax filing and payment obligations originally due on 31 May 2020.
  • Indirectly affected taxpayers: Businesses with decreased revenue due to the halting of operations may apply online with the NTS for filing and payment extensions of between three and nine months.
     

▲ Recent tax rulings and decisions

1. Korea’s tax tribunal issued a decision on 3 April 2020 in which it ruled that the value of real estate rental services for purposes of value added tax (VAT) is the price stated in the contract, and where the price changes after the conclusion of the contract, the value for VAT purposes should be adjusted accordingly. 

Background

• The taxpayer asked the tribunal, where the rental price of real estate has been reduced through a change in contract terms, whether the value of the rental services subject to VAT also should be reduced or whether the value for VAT purposes should continue to be based on the original contract price.
  

Summary of tribunal’s decision

• According to the tribunal’s decision, if the services to which the price reduction relates have not yet been rendered, the value of such services that is taken into account for VAT purposes should be based on the reduced price.
  

2. A ruling issued by Korea’s tax tribunal on 8 April 2020 confirms that the issuance of a voucher purchased with mileage points to an affiliated business is not subject to stamp duty. 

Background

• The taxpayer asked the tribunal whether gift cards/vouchers purchased with mileage points, which are redeemable by entering the codes on an app or website and used for pre-arranged goods and services, should be subject to stamp duty.
  

Summary of tribunal’s decision

• The tribunal ruled that the issuance of gift cards purchased with mileage points are not subject to stamp duty.

3. A ruling issued by Korea’s tax tribunal on 3 April 2020 confirms that goods and services supplied to certain foreign companies in return for payments to be made in a foreign currency will not qualify for the zero VAT rate where the payments are received in Korean Won through a foreign currency transfer service of a FinTech company. 

Background

• The taxpayer provided services to a foreign company without a permanent establishment in Korea in exchange for payments to be made in a foreign currency. However, the taxpayer instead received the payments for the services in Korean Won through a foreign currency transfer service provided by a FinTech company. The taxpayer asked the tribunal to rule whether the services qualify for the zero VAT rate.
  

Summary of tribunal’s decision

• Under Korea’s current VAT law, supplies of goods and services to certain foreign companies for which payments are made in a foreign currency are subject to a zero VAT rate. The tribunal ruled that the services provided by the taxpayer, for which payments were received in Korean Won instead of foreign currency, do not qualify for the zero VAT rate regardless of the fact that the payments were made through a foreign currency transfer service of a FinTech company.

4. A ruling issued by Korea’s tax tribunal on 8 April 2020 confirms that acquisition tax may not be waived where the relevant taxpayer does not meet the Knowledge Industry Center (KIC) business requirement. 

Background

• The taxpayer is a unit owner of a KIC, the builder of which was granted an acquisition tax waiver under the applicable KIC rules. The taxpayer asked the tribunal to rule whether the builder should be subject to the tax if the taxpayer operates a business that does not meet the business requirement of the KIC tax incentive law.

Summary of tribunal’s decision

• The acquisition tax will become payable by the builder if the sales contract between the builder and the taxpayer and/or the subsequent operation of the taxpayer’s business are not in accordance with the business requirement for KIC tax incentives as prescribed in the relevant tax law.
• However, if the ownership of the KIC unit is wholly transferred from the builder to the unit owner prior to a change in the unit owner’s business that results in the termination of the tax incentives, the acquisition tax for which the waiver was granted cannot be imposed on the builder.
  

Contacts

For further questions or inquiries, please kindly contact representatives listed below.

Partner, Hong Seok Han : +82 (2) 6676-2585 / hseok@deloitte.com
Partner, Scott Oleson : +82 (2) 6676-2012 / scoleson@deloitte.com
Partner, Young Pil Kim : +82 (2) 6676-2432 / youngpkim@deloitte.com