South Korea: Tax Reform Proposals Unveiled by South Korean Government
South Korea: Tax Reform Proposals Unveiled by South Korean Government
South Korea’s Ministry of Strategy and Finance (“MOSF”) announced a proposal for “Revisions to the Tax Laws in 2009″ on 25 August 2009.1 The MOSF plans to submit the proposals to the National Assembly, and if approved, the measures will generally become effective from 2010, once passed into law by the legislative body at the end of the year. The main proposals affecting individuals are briefly described below.
Abolition of 30-percent non-taxation treatment for foreign employees – Under current law, foreign employees in South Korea are eligible to opt for one of the following benefits:
(1) Non-taxation treatment equal to 30 percent of total salary; or
(2) Application of a flat tax rate of 15 percent (16.5 percent with the resident surtax).
The proposal would abolish the 30-percent non-taxation treatment so as to equalize tax treatment between foreign and domestic employees.
Reduction in tax incentives for foreign engineers – Salary income received by certain foreign engineers in South Korea currently is exempt from individual income tax for five years. The proposal would only allow a 50-percent exemption for two years and the sunset clause of this incentive would be extended to 31 December 2011.
Reduction of individual income tax credit – The individual earned income tax credit for individuals with taxable gross individual earned income over KRW 100,000,000, would be terminated. The individual earned income tax deduction for taxable gross individual earned income over KRW 100,000,000, would be dropped from 5 percent to 1 percent, and the tax deduction would also be decreased from 5 percent to 3 percent for taxable gross individual earned income between KRW 80,000,000 and 100,000,000.
Source: KPMG