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 (June, 2007)


Revisions to Tax Laws

Revisions to the Presidential Decree of VAT Law ("VATL")

Further to the revisions to the Presidential Decree of VATL introduced in our previous newsletters on February, 2007 and September, 2006, we have included additional features of the revisions made to the Presidential Decree of VATL in this month's edition.

  • Qualifications and procedures for issuance of revised VAT invoices
    • The revised Presidential Decree of VATL has clearly stipulated cases where companies can issue revised VAT invoices and has also introduced procedures for issuing the revised VAT invoices. Companies falling under the following cases may issue revised VAT invoices:
      1. Return of previously sold goods;
      2. No provision of goods or services due to cancellation of contracts;
      3. Changes (increase or decrease) in invoice amounts;
      4. Issuance of local credit or purchase certificate (within 20 days from the end of a VAT period); or
      5. Errors made in requisite descriptions declared in VAT invoices

  • VAT-able business conducted by the government
    • As of January 1, 2007, businesses conducted by governments, which are involved in real estate leasing, wholesale, retail, restaurants, lodging, and sports facilities operation, have been converted from VAT-exempt business to VAT-able business. According to this revision, each of the business place where the above-mentioned businesses are performed is obligated to register separately with competent tax offices; however, according to the revised provision of the Presidential Decree of VATL, governments conducting VAT-able business are only required to register a 'place where the business is generally conducted'. If the government authorities assign the VAT-able business to a third party, the place of business to be registered with the tax office is the place where the assignee (of appointee or agent) generally undertakes the business.

Revisions to the Presidential Decree of Tax Incentive Limitation Law ("TILL")

  • Self-billing VAT invoices issued by a purchaser
    • As discussed in the previous special edition newsletter on September, 2006, a revision was made to TILL to allow purchasers to issue self-billing VAT invoices where suppliers do not issue VAT invoices for goods or services provicded. The procedures and conditions for an issuance of self-billing VAT invoice under the revised Presidential Decree of TILL include followings:
      1. A purchaser is required to submit an application form prescribed in VAT Law for the confirmation of the transaction to a district tax office with supporting documents (e.g., receipts) proving the existence of the transaction within 15 days from the date when a supplier provides goods or services to the purchaser;
      2. The purchaser can issue self-billing VAT invoices only if the invoice amount is not less than KRW 100,000 and not more than KRW 5,000,000; and
      3. The district tax office should reject the application for the confirmation submitted by a purchaser, if the purchaser has issued self-billing VAT invoices more than twice in the month when a purchaser submits the application form.

    • The revised Presidential Decree of TILL will be effective from July 1, 2007.
  • Tax exemption on dividend income from local funds derived in relation to overseas listed shares (Proposed on May 16, 2007)
    • As mentioned in the previos May newsletter, under the revised TILL, the scope of tax exemption on dividend income from local funds has been extended to the source of income originally derived from trading or valuation of overseas listed shares until December 31, 2009. The proposed revision to the Presidential Decree of TILL provides a specific scope of overseas listed shares, which includes depositary receipts (DR) issued based on overseas listed shares but excludes listed shares issued by overseas indirect investment institutes such as overseas mutual funds, exchange traded funds (ETF), and real estate investment trusts (REITs). The proposed revision provides that dividend income from local funds derived in relation to overseas listed shares indirectly invested through a local indirect investment institute would also be tax exempt.


Revisions to Agregated Real Estate Tax Law ("ARETL")

Under the current ARETL, taxpayers should voluntarily file their ARET return. However, under the revisions made to ARETL, the ARET in principle should be determined and assessed by taxing authorities, while the revised ARETL continues to allow taxpayers to elect the voluntary filling.

The revised laws will be effective from January 1, 2008.

Developments at Tax Authorities

Agreement between Korea and Kuwait for a revison of tax treaty

On May 31, 2007, MOFE announced that Korea and Kuwait had agreed to revise the double tax treaty between Korea and Kuwait. The two countries agreed that any business income generated from an off-shore construction place should be considered non-taxable. Furthermore, according to the announcement by MOFE, withholding tax rates applicable to interest and dividend income paid to Kuwait residents under the Korea-Kuwait tax treaty will be reduced from 10% to 5% and interest income paid to the Kuwait government will be tax exempt in Korea.

The proposed revision of tax treaty will take effect after being signed and ratified by the National Assembly.

Recent Tax Rulings and Cases

Independence in Ownership and Management of Small and Medium Sized Companies ("SMC") ( Jaejoyae-281, 2007.4.26)

The provision for 'independence' requirements under the Presidential Decree of Law for Small and Medium Sized Companies ("LSMC") applies in determining SMC status of companies for tax purposes. The provision of the Presidential Decree of LSMC was revised on December 27, 2005 to exclude companies owned by a non-listed company (including foreign companies) whose total assets are over 500 billion and who holds 30% or more interest in the companies. However, the transitional rule for this revision provides a three-year grace period to companies excluded from SMCs in accordance with the revised Presidential Decree.

It was unclear whether the three-year grace period under the LSMC would be also equally applied in determining SMCs under the TILL. However, the ruling confirms that the three-year grace period also applies in determining SMCs under TILL.

Dividend Received Deduction ( Jaebeobin-389, 2007.5.30)

Where a company ("AA") which is not a holding company under the Monopoly Regulation and Fair Trade Act ("MRFTA") receives dividend from its subsidiary ("BB") and claims a dividend received deduction ("DRD") under the Article 18-3 of Corporate Income Tax Law, a certain amount of the dividends which AA received from BB should be excluded from the DRD amount if BB owns an affiliate company ("CC"). Under the ruling, the rule for reduction in DRD amount applies to a case where AA, BB, and CC all fall under the same affiliate group under the MRFTA.


Get connected
Share your comments


More on Deloitte
Learn about our site


Stay connected
  • Facebook RSS