Korean Tax Newsletter (March, 2009)_SpecialEdition
Proposed Revisions to the Tax Laws
On March 16, 2009, the Ministry of Strategy and Finance ("MOSF") assounced a number of proposed revisions to the Corporate Income Tax Law ("CITL"), Individual Income Tax Law ("IITL"), and the Tax Incentives Limitation Law ("TILL"), which will be submitted to the National Assembly in April 2009, in order to promote corporate restructuring, revitalize the real estate market, and encourage investments and "job sharing" under the current downturn economic environments.
The major features of the proposed revisions (not all-inclusive) are as follows:
(Note) The proposed revisions are not final and therefore subject to change.
Measures to promote corporate restructuring
Help promote restructuring of the troubled firms under the restructuring plan of the Corporate Restructuring Promotion Act
- In case where the troubled firm sells its assets in order to pay the debt to financial institutions, it will be allowed to pay the tax on capital gains in installments over three years after the three-year grace period.
- In case where the major shareholders (corporate or individual) of the troubled firm donate their assets to help the troubled firm pay for corporate debts, such major shareholders will be allowed to take a tax deduction for the amount of the donated assets, and the troubled firm will be permitted to pay the corporate income tax on donation income in installments over three years after the three-year grace period.
- In case where the major shareholders (corporate or individual) sell their assets and have sales proceeds of the assets used to improve the financial conditions of troubled subsidiaries, capital gains of the major shareholders derived from the sales transaction will be exempt from corporate income tax or individual capital gains tax.
- In case where the troubled firm cancels or disproportionately reduces the shares donated by the major shareholders in order to improve corporate ownership structure, such major shareholders will be allowed to take a tax deduction for the amount of the donated shares, and the troubled firm will be permitted to pay the corporate income tax on donation income in installments over three years after the three-year grace period.
Assumption of Debt and Stock Swap
- In case where a parent company assumes debts of its troubled subsidiary and makes the troubled subsidiary a clean company, the parent company will be allowed to take a tax deduction for the amount of the assumed debts, and the troubled subsidiary will be permitted to pay the income tax on debt forgiveness income in installments over three years after the three-year grace period.
- In case where an acquiring company acquires the entire shares of the controlling shareholder of a company under corporate restructuring plan, and pays the consideration to the controlling shareholder with its treasury stock, the income tax on capital gains of the controlling shareholder will be deferred until the sale or disposition of the acquiring company's stock, and the securities transaction tax on the share exchange transaction will be exempt.
Bank Recapitalization Fund
The Financial Services Commission (FSC) already announced a plan for launching a 20-trillion-won 'bank recapitalization fund' with support from the Bank of Korea and the Korea Development Bank. Such bank recapitalization fund will be formed as both a specialized asset securitization company and a joint stock company.
According to the proposed revisions, the tax benefits for the bank recapitalization fund are as follows:
- In case where income arises in a joint stock company type fund, the income recognition will be deferred for five years by setting up a loss reserve account.
- In case where a joint stock company type fund sells the preferred shares, the securities transaction tax will be exempt.
- The withholding tax on the bond interest paid to both type funds will be exempt.
Measures to revitalize the real estate market
Abolishment of 30% of the capital gains surtax on non-business purpose land
According to the proposed revision, the capital gains derived from the transfer of non-business purpose land will be taxed only at the regular corporate income tax rate (12.1%/ 24.2% for FY2009 and 11%/ 22% for FY2010 onwards, including 10% resident surtax) without the current additional 30% capital gains surtax. This revision will be applied to the non business purpose land transferred on or after March 16, 2009.
Measures to encourage investments and support "job sharing"
Expansion of the temporary investment tax credit
Under the current TILL, temporary investment tax credit is granted at 10% of investment (3% for investment in the Seoul Metropolitan area) in equipments.
According to the proposed revision, new investment amount which exceeds the average investments over the last three years will be eligible for the additional 10% temporary investment tax credit.
In addition, the scope of business eligible for the temporary investment tax credit will expand to certain business service industries including automobile repair service business, communication equipment repair service business, advertising service business, cleaning service business, etc.
Tax deduction for job-sharing companies' employees
The revised TILL legislated on March 2, 2009 provides that a Small and Medium Sized Company ("SMC") joining in a "job sharing" program which cuts the salaries of existing employees and uses the savings to maintain jobs would be allowed to take a tax deduction in the amount of 50 percent of the decreased salary.
According to the proposed revision, employees of the SMCs participating in the "job sharing program" will receive tax benefits as well, which are 50 percent tax deduction on their decreased salary up to 10 million won for the year of 2009 and 2010.
If you have any questions concerning 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
|Kyoung Seon Jo
+82 (2) 6676-2475
|Sung Kyoon Lee
+82 (2) 6676-2476
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