Korean Tax Newsletter

Revision of Tax Laws

On March 17, 2026, the Strategy and Finance Committee of the National Assembly passed the Proposed Amendment to the Tax Incentive Limitation Law (TILL), which aims to introduce tax benefits for Reshoring Investment Accounts (RIA) and a temporary increase in the exclusion rate of dividend income from foreign subsidiaries.

1. Proposed Tax Incentive Limitation Law Regarding Reshoring Investment Account (“RIA”)

To incentivize the repatriation of offshore retail capital, the government has detailed a step-down tax exemption scheme for capital gains tax on overseas securities.Core Benefit: Exemption of capital gains tax (up to a limit of KRW 50 million) on the sale of overseas shares, provided the proceeds are reinvested in the domestic market.

Eligibility & Requirements:
Execution: Sale of overseas shares within an RIA, followed by conversion to KRW and purchase of domestic shares.
Holding Period: Must maintain the domestic stock investment for at least one year.
Tiered Exemption Rates (FY2026):
Sale during Q1 (By March 31): 100% (Full Exemption)
Sale during Q2 (June – July): 80%
Sale before Year-end: 50%

2. Proposed Increase in Dividend Received Deduction Rate 

To eliminate the burden of double taxation and encourage the cash shoring of overseas corporate reserves, the government will temporarily raise the exclusion rate for dividends received from foreign subsidiaries.

Inbound Dividend Exclusion: The exclusion rate for dividends paid by foreign subsidiaries to domestic parent companies will be increased from the current 95% to 100% (Effective for one year).

Controlled Foreign Corporation (CFC) Relief: For subsidiaries located in low-tax jurisdictions (CFCs), if 100% of the distributable income is repatriated as dividends to the domestic parent, such dividends will be fully excluded from the parent company’s taxable income (Effective for one year).

News from the tax authorities

1. Emergency Local Tax Support for Entities Impacted by Middle East Tensions

To alleviate financial strain caused by rising military tensions in the Middle East—including export disruptions, surging logistics costs, and payment delays—the government has instructed local governments to implement emergency tax relief.

Extension of Tax Deadlines:
    • Target Scope: Entities suffering direct damage from the Middle East crisis.
    • Details: Extension of filing and payment deadlines for local taxes (e.g., Local Income Tax) for up to 6 months, with a further extension of up to 1 year if deemed necessary.

Suspension of Local Tax Audits:
    • Target Sectors: Shipping, aviation, oil refining, petrochemicals, and entities with high export exposure to the Middle East.
    • Action: Commencement of new tax audits will be deferred until the end of the year in principle. For ongoing audits, suspensions or postponements will be granted upon application.

2. Implementation of Global Minimum Tax "Pre-Filing" System

In alignment with the global agreement between 140 countries, Korea has implemented the Global Minimum Tax (Pillar Two) effective from the 2024 fiscal year. NTS has launched a Pre-Filing program ahead of the official June 30, 2026, deadline.

Pre-Filing Support Measures:

Early Access: Although the official filing system opens on May 1, 2026, the NTS is accepting pre-filings starting in March to help firms identify and correct data errors in advance.
Technical Assistance: Participating entities will be granted exclusive access to the HomeTax portal to draft and submit filings early.
HomeTax Access: (Certificates·Registration·Application) ⇨ (Global Minimum Tax Application/Filing) OR (Tax Filing) ⇨ (Global Minimum Tax Filing)

Recent tax rulings and cases

1. DeemedDividend from Treasury Shares

(Seomyun-2024-Sodeuk-2359, February 26, 2026)

▣ Ruling request

The company acquired and held shares for the purpose of defending management rights, and the transferors filed and paid Capital Gains Tax and Securities Transaction Tax at the time of the transfer.

The company now intends to cancel the treasury shares, which were originally acquired and held for management defense, through the method of profit cancellation (retirement of shares) as the initial acquisition objective has been partially achieved. In this case, whether the profit cancellation of treasury shares constitutes a Deemed Dividend or Capital Gains is the point of inquiry.

2. The Higher Dividend for Preferred Shares 

(Seomyun-2023-beobkyojesan-3979, January 23, 2026)

▣ Ruling response

Where a corporation with provisions for class shares in its Articles of Incorporation distributes profits or surplus, the provisions regarding the Gift of Profits from Excessive Dividends under Article 41-2 of the Inheritance and Gift Tax Act shall not apply to differential dividends distributed to specially related persons of the largest shareholder, etc., through class shares issued in accordance with the Articles of Incorporation (e.g., distributing dividends only to preferred shares rather than common shares, or at a higher dividend rate for preferred shares than for common shares).

However, if a special relationship exists between the preferred shareholders and common shareholders, and the dividend structure—including the issuance of preferred shares and the distribution of dividends—is intended to concentrate profits on a specific shareholder such that the economic substance of the dividend is deemed to have transferred benefits, which the common shareholders could have enjoyed, to the preferred shareholders beyond the normal scope of the preferred shareholders' rights, the provisions regarding the Gift of Profits from Excessive Dividends under Article 41-2 of the Inheritance and Gift Tax Act shall apply. Whether the facts of the inquiry fall under this category is a matter of factual determination to be made by comprehensively considering all relevant circumstances. 

3. TaxDeduction of Levy for Employing Persons with Disabilities 

(Supreme)Court 2026. 3. 12. 2024 Du 30809)

▣ Supreme Court Ruling

Comprehensive consideration of the purpose and nature of the disability employment levy leads to the following conclusion: while the levy constitutes a public charge imposed on business owners for failure to fulfill the mandatory employment quota under Article 28, Paragraph 1 of the former Act on Employment Promotion and Vocational Rehabilitation of Persons with Disabilities, it cannot be further classified as a "public charge imposed as a sanction." Consequently, it does not fall under the category of "public charges imposed as a sanction for non-fulfillment of obligations under laws and regulations," which are excluded from deductible expenses (i.e. non-deductible) under Article 21, Item 5 of the former Corporate Tax Act. The specific reasons are as follows.

(...) The disability employment levy system was introduced to redistribute the economic burden associated with employing persons with disabilities between business owners. This is achieved by collecting funds from employers who fall below the mandatory employment quota and providing employment subsidies to those who exceed it. Ideally, a state where the employment obligation is perfectly fulfilled—and thus no levy needs to be collected—remains the desired outcome. In this regard, the disability employment levy possesses a strong character of an "inducive and regulatory (special) contribution" aimed primarily at promoting the employment of persons with disabilities who face difficulties in the labor market, rather than serving a purely fiscal purpose (Refer to the Constitutional Court Decision 2001Hun-Ba96, July 24, 2003). Therefore, the disability employment levy must essentially be viewed as having the attributes of a tax-deductible business expense that arises in connection with the existence of an employer's business, assets, or transactional activities. For companies that disallowed a tax deduction for said expenses in the last five years, a refund opportunity may exist.

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