Korean Tax Newsletter (August, 2006)
Revisions to Tax Laws
Annual Revisions to Tax Laws Proposed
On August 21, 2006, the Ministry of Finance and Economy (“MOFE”) announced the proposal for “Revision to Tax Laws in 2006” subject to legislative process and generally to be effective in 2007. The revisions include Corporate Income Tax Law, Individual Income Tax Law, Tax Incentive Limitation Law, National Tax Basic Law and Customs Act provisions. To introduce you with the main contents of the proposed revision, we plan to issue a special edition shortly.
Reassessment of application for High-Tech Tax Exemption
Where an application for high-tech tax exemption for foreign investment is rejected by the tax authorities, the foreign investment company (or foreign investor) would be able to request reassessment of the application in the future. The current law does not allow reassessment of the application for high-tech tax exemption, but the Korean government plan to amend the law to allow such reassessment request.
Relief of requirement for issuance of D-7 visa
In order to receive a D-7 visa granted to foreign professional personnel who are transferred to branch office or affiliated company in Korea from a foreign company, the concerned foreign employees need to have worked for over a year in head offices, branch offices or other business offices of the foreign company before the relocation. This requirement will not have to be satisfied when certain conditions to be provided by the Ministry of Justice are met, but the conditions are still being worked out.
Recent Tax Ruling and Cases
Withholding tax on retirement pension payment (Seomyun1team-1061, 07.27.2006)
Where an employee receives a lump sum allowance under a Defined Benefits Retirement Pension Plan, the employer is required to withhold income tax. On the other hand, income tax on the lump sum allowance granted under a Defined Contribution Retirement Pension Plan should be withheld by the administrator of the retirement pension fund. In addition, the administrator is required to withhold income tax on monthly pension paid to the employee.
Classification of Small and Medium Sized Company (“SMC”) (Seomyun2team-1309, 07.12.2006)
Where a domestic company manufactures products by consigning to a foreign company, the domestic company is regarded as a wholesale company, not a manufacturing company, in determining whether the domestic company can be classified as a SMC under the tax laws. Accordingly, the domestic company should maintain its average number of employees below 10, instead of 100 for the manufacturing company, in order to be qualified as “small sized company” eligible for special tax exemption for SMCs.
Non-claimable input VAT (Gukshim 2006 Joong1869, 07.27.2006)
Where a company was charged input VAT due to difference between actual transaction date and invoice date, the input VAT can not be claimed even though the company files amended VAT return with a correct VAT invoice reissued afterwards, since the correct VAT invoice is deemed to be issued after the transaction, i.e., not in time. Therefore, all VAT invoice dates should be the same as the transaction dates, unless exceptions are provided in the law.
Page Last Updated