Korean Tax Newsletter

Revision of Tax Laws

On February 27, 2026, the Ministry of Economy and Finance released the Proposed Ministerial Decree (“MD”) for the new Korean Tax Laws. This proposal outlines the practical implementation details for several newly introduced tax incentives. The major proposed revisions include the following:

1. New Tax Credits for Webtoon Production Costs

^{Reference: Newly established Article 13-11 of the MD of the Tax Incentive Limitation Law (“TILL”)}

^{To bolster the global competitiveness of K-Webtoons, the government has detailed the eligibility and scope for a new production cost tax credit.}

2. Expansion of Strategic Technology Facilities

^{Reference: Table 6 of the MD of the TILL.}

3. Additional Documentation Requirements for Rectification Claims Related to Arm’s Length Price Adjustments (proposed revision to Article 2 of the MD of the International Tax Coordination Law (“ITCL”)

The proposed revision introduces stricter documentation requirements for taxpayers filing a claim for rectification (refund claim) following an adjustment to arm’s length prices. To prevent tax avoidance and ensure transparency, taxpayers must now submit evidence of double taxation.

Required Evidence for Global Taxable Income Adjustments includes:

• Certificates of tax payment in the counterparty’s jurisdiction.
• Accounting ledgers and financial statements reflecting the adjustment of taxable income.
• Amended tax returns filed by the foreign related party, etc.

4. Expansion of Jurisdictions Exempt from Controlled Foreign Corporation (CFC) Rules (Proposed revision to Article 37 of the MD of the ITCL)

Under the CFC rules—which are designed to prevent tax avoidance by taxing the undistributed earnings of foreign subsidiaries—certain regions are treated as a single economic block for exemption purposes.

Key Update: The proposed amendment officially stipulates that the United Kingdom (UK) and the European Union (EU) will continue to be treated as the same region for the purposes of applying CFC taxation exemptions. This provides regulatory certainty for corporations operating across both the UK and the EU post-Brexit.

News from the tax authorities

1. Tax Administrative Support: KRW 3 Trillion in Liquidity for 100,000 Corporations

The National Tax Service (“NTS”) announced the implementation of the following measures for eligible SMEs and middle-market enterprises:

• Eligibility Categories:
  i. Export-oriented companies experiencing a decline in revenue.
  ii. Companies in the petrochemical, steel, and construction industries facing difficulties due to oversupply or economic recession.
  iii. Companies located in Employment or Industrial Crisis Preemptive Response Zones*.
  _{(Employment Crisis Zones): Yeosu, Pohang, Seosan, Gwangsan-gu (Gwangju), Nam-gu (Ulsan)
  (Industrial Crisis Zones): Yeosu, Pohang, Seosan, Gwangyang}
• Payment Deadline Extension: The corporate income tax payment deadline has been automatically extended by three months, from March 31 to June 30. SMEs: To September 1.
• Expedited Refunds: For corporations eligible for tax refunds, payments will be processed by April 10, which is 20 days earlier than the statutory deadline of April 30.

Extension of Installment Payment Deadlines and Reporting Requirements
For corporations eligible for tax support, the payment deadline for installment taxes is also extended. Corporations with tax liability exceeding KRW 10 million may pay their installment taxes by the following dates:

• General Corporations: July 31
• Small and Medium-sized Enterprises (SMEs): September 1

Additional Compliance & Extension Rules:

• Filing Requirement: Despite the payment extension, the Corporate Income Tax return must still be filed by March 31.
• Further Extensions: Corporations facing continued financial hardship that prevents payment by June 30 may apply for an additional extension of up to 6 months (until December 31).
  

2. Support for Future Strategic Industries through R&D Tax Incentives

The Commissioner of NTS emphasized that "Research and Development is the core driver of national competitiveness." To ensure companies can overcome tax-related difficulties and focus entirely on R&D activities, the following proactive tax administrative support measures will be implemented:

➊ One-Year Deferral of Post-Verification for R&D Special Zone SMEs To allow companies to focus exclusively on research, the NTS will defer "Post-Verification" (audits) of Research and Manpower Development Tax Credits for one year.

• Target: Approximately 13,500 SMEs located within R&D Special Zones.
• Scope: Includes 6 Metropolitan Special Zones (approx. 11,800 firms) and 13 Gangso (Small but Strong) Special Zones (approx. 1,700 firms).

➋ Liquidity Support for New Industries and Emerging Technologies for SMEs in future-growth sectors facing temporary financial difficulties, the NTS will provide enhanced payment flexibility.

• Deadline Extension: Tax payment deadlines can be extended for up to 9 months upon application.
• Collateral Waiver: Submission of tax collateral will be waived for amounts up to KRW 100 million.

➌ Priority Processing of R&D Tax Credit Pre-Reviews to resolve tax uncertainty at an early stage, the NTS will prioritize "Pre-Review" applications from R&D-intensive SMEs.

• Accelerated Review: These applications will be handled as priority cases, regardless of the order of receipt, ensuring the fastest possible confirmation of eligible R&D expenditures.

_{Note: The "R&D Tax Credit Pre-Review" is a system where the NTS confirms in advance whether a company's research expenses qualify for tax credits.}

Recent tax rulings and cases

1. Tax Determination on Cash Dividends Paid via Capital Surplus Reduction

(Seomyun-2025-Kookjesewon-1970, February 4, 2026)

▣ Ruling response

When a domestic corporation reduces its share premium—which is excluded from taxation as a constructive dividend—and converts it into retained earnings to fund a cash dividend to non-resident or foreign corporate shareholders, the following applies:

• Classification: The distribution is not classified as domestic source dividend income.
• Withholding Obligation: The domestic corporation is not required to withhold tax at the source, as the distribution is considered a return of capital rather than a taxable dividend.

2. Inclusion of Foreign Taxes Paid by a Partnership in the Actual Tax Burden

(Seomyun-2024-beobkyokookjo-2494, January 29, 2026)

▣ Ruling response

Based on the facts provided, where income from an Australian partnership is attributed to Entity A (a Maltese partner), and Entity A both pays taxes in Australia and includes that income in its pre-tax earnings:

• Scope of Actual Tax Burden: The taxes actually paid by Entity A under Article 62 of the Enforcement Decree of the International Tax Coordination Act (ITCA) shall include the taxes paid in Australia.
• CFC Rule Application: This ruling confirms that foreign taxes paid in a third country (Australia) by the partner on partnership income are recognized when determining if the foreign corporation (Maltese entity) meets the effective tax rate threshold for Controlled Foreign Corporation (CFC) exemptions.
  

3. Flexibility in Tax Loss Management: Switching from Carryback to Carryforward

(MOEF, Beobinsekwa-615, December 8, 2025)

▣ Ruling response

A domestic small or medium-sized enterprise (SME) that has previously received tax benefits through a loss Carryback may voluntarily file an amended return to reverse that claim. Consequently, the corporation is eligible to apply loss Carryforward deductions when calculating its tax base for business years following the year in which the deficit occurred, in accordance with Articles 13 and 14 of the Corporate Tax Act.

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