The 2018 tax revision focuses on the following.

• Strengthening social welfare and bringing about redistribution of income
• Promoting job creation and ‘growth through innovation’
• Pursuing fair taxation

Strengthen social welfare

• Expand the EITC to the bottom 60 to 70 percent of earners: A total of 3.8 trillion won will be made available to 3.34 million households, an increase from 1.2 trillion won to 1.66 million households
• Expand the eligibility of child benefits to those receiving survivor benefits and increase the payment from 300,000-500,000 won a month to 500,000-700,000 won
• Raise the income tax exemption ceiling for daily workers from 100,000 won to 150,000 won
• Give young adults a tax exemption for interest earned from their new home purchase savings accounts: Eligible to those earning less than 30 million won annually and not owning a house for up to 5 million won of interest earned from the savings account for new home purchases
• Give young adults in their mandatory military service a tax exemption for interest earned from their military savings accounts
• Expand the tax reduction for 15 percent medical expenses to postpartum care for the expenses exceeding 3 percent of annual salaries with the maximum of up to 2 million won: Employees earning less than 70 million won a year and business owners earning less than 60 million won a year will be eligible for the new medical expense deduction.
• Increase tax incentives for charitable donations: Give a tax reduction for 15 percent of charitable donations if they are worth 10 million won or less and 30 percent if they are worth more than 10 million won, and allow social enterprises to include in their business expenses up to 30 percent of their mandatory donations
• Give a 50 percent income tax reduction to SME employees for the incentives given as profit sharing, and provide those SMEs with 10 percent tax reduction for the profit sharing

Revise property taxes

• Raise property tax revenues to around 1 percent to GDP by 2022, near the OECD average of 1.1 percent to GDP
• Separately tax housing rental income from other incomes if it does not exceed 20 million won a year starting in 2019
• Increase expense deductions for small-scale housing rental income (20 million won or less annually)

Regulate overseas tax evasion

• Expand the duty of reporting overseas financial accounts held by overseas companies to individual owners of the company with 100 percent ownership, including beneficial owners, an expansion from corporate owners of the company
• Require corporations, in addition to individual citizens, to explain unreported offshore accounts
• Increase penalties for not reporting overseas property transactions, and require explanation for unreported investment overseas, including property investment
• Extend the statute of limitations for offshore transactions to 10 years
• Raise exit taxes: Impose up to 25 percent taxes on the sales of corporate shares and introduce a tax on the sales of property shares

Reform tax support

• Impose a VAT on overseas cloud services
• Put an end to tax free interest and dividend income earned from financial cooperative accounts: applied to nonmembers from 2019 and members from 2022
• Make virtual currency dealers no more eligible for SME tax reduction
• Place stamp duties on mobile gift certificates as placed on paper gift certificates
• Make landlords no more eligible for small business expense deduction for pension contributions
• End the derivatives sales tax exemptions

Promote job creation

• Give increased tax support to businesses investing in areas affected by restructuring : A five year corporate and income tax exemption for startups, increased tax reduction for business asset investments, expanded SME tax support to medium-sized enterprises, which includes support for employee retention and reduced work hours
• Give SMEs and medium-sized enterprises a one-year labor cost deduction for returnees from childcare leave (more than 6 months), applicable to both mothers and fathers
• Revise the zone-specific tax support program with its focus on job creation: Set stricter requirements as to job creation and employee retention while relaxing requirements as to investment, and increase tax reduction for creating jobs
• Revise the tax reduction for jobs created to cover more young adults and longer periods (up to 3 years for SMEs and medium-sized enterprises, and up to 2 years for large enterprises)
  

  Annual tax reduction for jobs created, revised(thousand won, per employee)

  		SMEs		Medium-sized enterprises	Large enterprises
  		Large enterprises	Outside the Seoul metropolitan area
  All jobs created		7,000	7,700	4,500	-
  Young adult permanent jobs	Ordinary enterprises	10,000	11,000	7,000	3,000
  	Enterprises employing more young adults	15,000	16,000	12,000	8,000
  Current account (US %billion)	78.5	64.0	63.0

• Expand the reshoring tax reduction to large enterprises moving only part of their operations back into the country
• Extend the SME tax reduction for social insurance contributions paid for new employees by three years, and also extend by three years the tax reduction for creating permanent positions for temporary employees to fill, applied to both SMEs and medium-sized enterprises

Support ‘growth through innovation’

• Allow accelerated depreciation for facilities invested between July 1, 2018 and December 31, 2019, if they are to boost ‘growth through innovation’
• Increase tax support for R&D investment: Expand the R&D tax reduction of up to 40 percent of the investment to blockchain technologies and quantum computing
• Increase tax support for facility investment made to commercialize R&D outcomes: Ease requirements for the facility investment tax reduction of up to 10 percent of the investment from investing in R&Ds more than 5 percent to total sales to more than 2 percent
• Increase tax exemptions for employee inventor rewards from up to 3 million won to up to 5 million won annually
• Extend the period of the 50 percent income tax reduction given to foreign engineers from 2 years to 5 years
• Allow medium-sized enterprises’ contributions to employee reward programs to be tax-deductible, in addition to the contributions made by SMEs
• Give startup accelerators an expanded capital gains tax exemption: Stocks purchased through private equity funds to be capital gains tax-exempt in addition to stocks purchased directly or stocks purchased through public equity funds
• Give startup accelerators a VAT exemption for their services
• Make pension funds’ arbitrage dealing in the KOSDAQ free of stock transaction taxes
• Lower the withholding tax rate on interest earned from P2P lending from 25 percent to 14 percent to promote the sharing economy in the financial services industry
• Expand a 30 percent tax reduction for electric vehicle rentals to hydrogen fuel cell vehicle rentals: Vehicle rental businesses more than 50 percent of which services involve the renting of electric cars and hydrogen cars will receive the tax reduction, an expansion from electric cars making up more than 50 percent of their services to boost the hydrogen fuel cell vehicle market

Reform environmental taxes

• Revise environmental taxes to reflect the amount of pollutants emitted: Raise the soft coal tax rate and lower the LNG tax rate, so that the soft coal contributions will be twice the LNG contributions
• Temporarily provide in 2019 a 70 percent individual consumption tax reduction for new vehicle purchases if they follow the scrapping of old diesel vehicles
• Continue to impose transportation, energy and environmental taxes until the end of 2021
• Keep the individual consumption tax reduction for hybrid vehicles until the end of 2021

Other revisions

• Allow the renewal of the 5 year license for duty free shops: Up to 10 years for large retailers and up to 15 years for small- or medium-sized retailers
• Cut the duty free shop license fee to 0.01 percent of the sales for SME products sold at large retailers
• Increase tax exemption for dividend income earned from subsidiary shares in order to encourage holding companies to raise shares in their subsidiary companies

  Shareholding in subsidiary companies		Tax free dividend income
  Listed	Unlisted	Current	Revision
  Over 40%	Over 80%	100%	100%
  30% - 40%	50% - 80%	80%	90%
  23% - 30%	40% - 50%		80%

• Suspend the sunset of the income tax reduction for credit card payments by 1 year
• Revise the tax reduction for facility investment according to two categories: Up to 10 percent reduction for investments to improve safety or welfare, and up to 7 percent reduction for R&D investment or other investments to improve productivity
• Ease regulations on death tax fraud: Death tax reduction for up to 50 billion won, which is given when family businesses are inherited, has been collected 100 percent when more than 20 percent of the inherited assets are sold within 10 years, but according to the revision, the amount to be collected will depend on how much of the assets are sold.

Increase taxpayer convenience

• Lower late payment charges, as well as penalties for VAT filing mistakes
• Look into all factors that could have affected the tariff if there is a request before the reporting of the price
• Lift the security deposit requirement for the late payment of tariffs, applied to products imported by exporters for their production of goods to be exported

Schedule for the revision

• Announcement of the revision: July 30
• Notice of the revision: July 31 – August 16 (16 days)
• Referring to the cabinet meeting: August 28
• Submission to the National Assembly: August 31