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Korean Tax Newsletter (October, 2010)

Revision to Tax Law

Presidential Decree ("PD") of Foreign Investment Promotion Act ("FIPA")

Increasing the minimum foreign investment amount
Under the revision, the minimum foreign investment amount for FIPA purposes will be increased from the current KRW 50 million to KRW 100 million, effective from 6 October 2010.

Extending the scope of foreign investments
Where a foreign-invested company converts its earned surplus reserve into capital in accordance with the Commercial Law, such converted capital will also be regarded as a foreign investment. This revision will be effective on or after 6 October 2010.

PD of the Framework Act on Local Tax ("FALT")

Allowing taxpayers to request a local tax refund
Under the previous law, a taxpayer is not allowed to request a local tax refund and therefore, local taxes were only refundable through a correction procedure made by the local tax authorities. With the revision, where a contract is terminated or cancelled under certain unavoidable circumstances, the taxpayer is allowed to request to the tax authorities to correct the tax base within 2 months from the date on which the taxpayer acknowledges the termination or cancellation of the contract.

Deferring the underpaid tax on demand
Where a taxpayer has difficulties in paying local taxes on demand by the due date with the causes that: (i) the taxpayer or his/her family requires a long medical treatment for illness/accident or (ii) a severe property loss is incurred from certain disaster, the head of the local government may defer the tax collection for 6 months.

New provisions on organization and operation of the Local Tax Review Committee
Under the new provisions for the organization and operation of the Local Tax Review Committee, (i) the Local Tax Information Disclosure Committee, (ii) the Review on Propriety Before Tax Assessment Committee, (iii) the Local Tax Base Review Committee and (iv) the Local Tax Review Committee, which have been organized and operated by each local tax government, are integrated into one committee, this Local Tax Review Committee. According to the provisions, (i) the Local Tax Review Committee is established in metropolitan city/megalopolis/province with 25 members or less or in si/gun/gu with 19 members or less, (ii) for both cases, non-government members should hold a majority of the Committee, and the chief of the Committee is elected among the non-government members, and (iii) the non-government members should hold the majority where the Committee is held.

Tax Incentive Limitation Law ("TILL")

Extension of the period for off-setting gains from foreign listed stocks against losses from the stocks
Currently, where an individual resident invested to a foreign listed stock through an overseas fund, a loss incurred from the sale and valuation of the foreign listed stock before 31 December 2009 can be offset against a gain generated from the sale and valuation of the foreign listed stock for the period from 1 January 2010 to 31 December 2010 according to the TILL. With the revision, the period of off-setting of the gain against the loss is extended as follows:

Currently Revised
A gain for the period from
1 January 2010 to 31 December 2010
A gain for the period from
1 January 2010 to 31 December 2011

Developments at Tax Authorities

Providing additional electronic income deduction certificates for year-end payroll tax settlement purposes

The National Tax Services ("NTS") has been issuing electronic income deduction certificates for insurance expenses, pension saving deposit, retirement pension, medical expenses, education expenses (including training expenses), credit card expenses (including cash receipts), and housing saving deposit, etc. for year-end payroll tax settlement purposes. In addition to the above, the NTS has a plan to provide additional income deduction certificates for donations, education expenses for preschool children and private kindergartens, expenses for gymnastic facilities or private educational institutes, and education expenses for the disabled from the fiscal year 2010.

Recent tax rullings and cases

VAT refundable service provided to a foreign company (Buga-803, 2010.06.28)

Where a foreign company without a permanent establishment in Korea operates its own business outside of Korea and is provided with the installation service for an exhibition center by a domestic company, the VAT paid with regard to the service is refundable in accordance with the TIIL.

Applying the amended ordinance on local tax exemption (Jibangsewoonyoung-1570, 2010.04.19)

Where a foreign-invested company has been enjoying a reduction or exemption of acquisition tax and registration tax under the local tax ordinance but the ordinance is amended to extend the exemption period and to allow 100% exemption for acquisition and registration tax, the amended ordinance is applied to the foreign-invested company.

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
Young Pil Kim
+82 (2) 6676-2432
Kyong Chin So
+82 (2) 6676-2487


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