This site uses cookies to provide you with a more responsive and personalised service. By using this site you agree to our use of cookies. Please read our cookie notice for more information on the cookies we use and how to delete or block them.

Bookmark Email Print page

Korean Tax Newsletter (December, 2008)


Revisions to Tax Laws

The revised tax laws for 2009 were promulgated on December 26, 2008. In this Newsletter, we will introduce the revised tax laws that were not covered previously and tax laws that were amended during the legislation process.

Tax Incentive Limitation Law("TILL")

Temporary investment tax credit("TITC")

Under the previous TILL, companies can not claim TITC on the qualified investment made inside the Seoul Metropolitan Area ("SMA"). With the revision, however, companies can claim TITC on the investment made inside of SMA as well. The revision is effective for the investment made on or after January 1, 2009.

Decrease in minimum tax rate

In our June Tax Newsletter, we introduced the Ministry of Strategy and Finance ("MOSF")'s plan for decrease in minimum tax rates. According to the promulgated tax law, the decreased minimum tax rates for companies other than Small Medium Sized Company ("SMC") will be effective starting from FY2009, rather than FY2008, as below.

Tax Base Tax Rate
FY 2008 FY 2009 FY2010 ~ onwards
Above 100 billion won 15 % 14 % 13 %
100 billion won or below 13 % 11 % 10 %

The decreased minimum tax rates for SMC are the same as those proposed by the MOSF (i.e. 8% for FY2008 and FY2009 and 7% for 2010 and onwards).

Individual Income Tax Law

Reduction of individual income tax rates

In our September Tax Newsletter, we introduced MOSF's plan for decrease in the individual income tax rates. According to the promulgated tax law, the individual income tax rates will decrease as below.

Tax Base Tax Rate( *)
2008 2009 on or
after 2010
Up to 12 million won 8 % 6 % 6 %
12 million won - 46 million won 17 % 16 % 15 %
46 million won - 88 million won 26 % 25 % 24 %
Over 88 million won 35 % 35 % 33 %

( *) Exclusive of 10% resident surtax.

Revisions to the Presidential Decree of TILL

TITC rate

The Presidential Decree of TILL was revised on December 31, 2008. According to the revision, TITC rate applicable for the investment made outside of SMA will increase from 7% to 10% and will be 3% for investment made inside of SMA. This revision is effective for the investment made on or after January 1, 2009.

Developments at Tax Authorities

Horizontal Monitoring System

The National Tax Service ("NTS") indicated that it is under consideration to introduce "Horizontal Monitoring System" as below.

  • i) The tax authority makes so-called Gentlemen's Agreement with a taxpayer with regard to the faithful fulfillment of the taxpayer's obligation; and
  • ii) If the taxpayer fulfils the taxpayer's obligations faithfully, the tax authority accepts the taxpayer's tax filing as filed, without a tax audit.

The "Advance Ruling System" which we introduced in our October Tax Newsletter is available for all taxpayers; but, limited to matters related to the interpretation of the tax law. However, the horizontal monitoring system would only apply to companies which have an agreement with the NTS; but deals with all tax matters of the companies.

The details of the horizontal monitoring system have yet to be announced. However, basically companies which have established a strict internal control system for administration of tax matters as well as have put in place ethical and transparent management would be eligible to apply the horizontal monitoring system according to the NTS.

Recent Tax Rulings and Cases

Transfer pricing adjustment by tax authority ( Jaekukjo-223, 2008.09.26)

In case where the transaction price of an international transaction between a Korean resident and its foreign related party is less than the arm's length price, the tax authority can make an upward transfer pricing adjustment correction based on the arm's length price in accordance with the Article 4 of the International Tax Coordination Law ("ITCL"). According to this ruling, the tax authority can also make a downward adjustment correction in its capacity based on the Article 4 of the ITCL if the transaction price with a foreign related party is higher than the arm's length price. The ruling further provides that the upward/downward adjustment correction can be made regardless of whether a corresponding adjustment was made in the country where the foreign related party resides.

Disallowed interest expense treated as dividend through secondary adjustment due to the thin capitalization rule ( Beobin-3269, 2008.11.5)

In case where certain qualified Special Purpose Vehicles ("SPVs") stipulated in the Article 51-2 of the CITL declare dividend for 90% or more of the total distributable profits, the declared dividend amount can be deducted from the taxable income of the SPV. According to this ruling, the disallowed interest expense due to the thin capitalization rule of the Article 14 of the ITCL and recharacterized as dividend through the secondary adjustment is also included in the scope of dividend under the CITL.


Get connected
Share your comments


More on Deloitte
Learn about our site


Stay connected
  • Facebook RSS