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Korean Tax Newsletter (December, 2010)


Revision to Tax Law for 2011

The "Revisions to the Tax Laws for 2011" were approved by the National Assembly on 8 December 2010 and generally will become effective as from 1 January 2011. The final draft of the law contains some changes to the prior proposed version. The major changes are summarized below.

Corporate Income Tax Law

Repeal of withholding tax exemption on investment income from national bonds and monetary stabilization bonds

The exemption for investment income (i.e. interest income and capital gains) derived from national bonds and monetary stabilization bonds ("bonds") of a foreign company/a nonresident is abolished. Additionally, if there is an urgent need to stabilize the financial market, the flexible withholding tax rates, which can be reduced to 0%, is allowed to be applied according to the Presidential Decree ("PD") of the tax laws. This rule is effective for investment income earned on or after 1 January 2011. Bonds acquired before 12 November 2010, will not be subject to the new rules, and thus the taxation of investment income is classified as follows:

Acquired before
12 November 2010
Acquired on or after 12 November 2010
and up to
31 December 2010
Acquired on or after
1 January 2011
· Tax-exempt · Investment income
  earned up to 31
  December 2010:
  Tax-exempt

· Investment income
  earned on or after
  1 January 2011: Taxable
· Taxable


Tax Incentive Limitation Law

Tax credit for temporary investment and investment that creates employment

Under previous proposed changes to the TILL, the amount of the temporary investment tax credit would have been calculated uniformly at a rate of 7% of the investment amount, with a credit ceiling tied to the number of new employment positions created. However, the final version varies the tax credit rate based on the type of the investing company and the area in which the investment is made as below:

  Large company investing outside the Seoul Metropolitan Area (“SMA”)/small and medium-sized company (“SMC") investing outside a highly populated area Large company investing within a growth-controlled or nature protected area of SMA
Temporary investment tax credit (no upper limit) 5% 4%
Tax credit for investment that creates employment(*) 1% 1%
(*)The upper limit of the tax credit for investment for creating employment will be calculated as KRW 10 million per new employment created (KRW 15 million for a youth aged 15 to 29).


Repeal of Individual Exercise Tax exemption on golf club membership

The Individual Exercise Tax exemption on membership in a golf club located outside the SMA will no longer be available as from 1 January 2011.

Tax credit for investment in energy-saving facilities

The tax credit for investment in energy-saving facilities will be changed as follows:

Item Current Revision
Tax credit rate 20% x investment amount 10% x investment amount
Limits Calculated tax amount x 30%
(SMCs are not subject to the limit)
No limits
Carry forward N/A 5 years


Expansion of scope of business eligible for tax exemptions

The business of operating facilities for career development and training programs is now included within scope of businesses eligible for the tax exemption for newly established SMCs or the special tax exemption for SMCs.

Exclusion from application of premium rate for stock of SMCs

The exclusion from the application of premium rate for the stock of SMCs will be extended until 31 December 2012.

Tax benefits for companies returning to Korea

Korean companies that close down their overseas businesses that have been operated for two or more years and return to Korea to open a new place of business outside the SMA to operate the same business will be entitled to a 100% exemption from corporate/individual income tax for the first five years of operation and 50% for the next two years.

International Tax Coordination Law

Reporting of offshore bank deposit accounts

A resident/a domestic company that holds offshore bank deposit accounts exceeding a certain amount must report the accounts to the National Tax Service (NTS) in June each year. Failure to report or under-reporting the account will give rise to a penalty of less than 10% of the non-reported/under-reported amount.


Proposed revision of Customs Duty Incentive Law

The Ministry of Strategy and Finance (MOSF) issued a notice on the proposed revision of the PD and the Ministerial Decree of the Customs Duty Incentive Law for Facilitation of FTA in connection with a Certificate of Origin:

  • If a company imports products valued under USD 1,000 each or imports the same products repeatedly, the company can benefit of customs duty without the submission of a Certificate of Origin.

  • An export company need not submit a copy of an acceptance certification of export declaration to receive a Certificate of Origin if the export can be confirmed electronically.

  • Various types of application forms, depending on the use of the products, to receive a Certificate of Origin are unified in a single form, which can be used over a 12-month period.

  • Where an exporter and a manufacturer are different entities, the manufacturer can submit the relevant supporting documents directly on behalf of the exporter.

  • Where there are minor errors (e.g. typing errors) in the application form that do not affect the determination of the country of origin, the Certificate of Origin can be issued without correction.


Developments at Tax Authorities

Taxation on income from a financial account invested in gold

On 2 September 2010, the NTS requested a tax ruling from the MOSF as to whether income from a financial account that invested in gold is included within the scope of dividend income. The National Tax Ruling Examination Committee decided that income from such an account that is earned after 1 January 2009 should be treated as dividend income.

Revision of tax treaties

The tax treaties between Korea and Belgium/Singapore have been revised to include a clause on the exchange of financial information. However, details of the amendment have not yet been announced.

Issuance of business registration certificate via internet

As from 1 December 2010, a business registration certificate can be requested and issued via the NTS website (www.hometax.go.kr).


Recent tax rulings and cases

Vietnamese VAT separately paid from consideration of services (Buga-1574, 2010.11.30.)

Where a taxpayer operating a VAT-exempt business in Korea receives services from a Vietnamese company without a permanent establishment in Korea and payment for the services is subject to the Korean proxy VAT under the Korean VAT Law, the Vietnamese VAT paid separately on the services should be included in the tax base for the Korean proxy VAT.


If you have any questions on the items in this month's newsletter, please contact your tax advisor at Deloitte Anjin LLC or the following tax professionals:

Seung Chan Park
+82 (2) 6676-2422
separk@deloitte.com
Young Pil Kim
+82 (2) 6676-2432
youngpkim@deloitte.com
Kyong Chin So
+82 (2) 6676-2487
kyoso@deloitte.com

 

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