Revision to Tax Enforcement Decree, 2016
2016 Decree Revision Focuses on Fostering New Growth Industries
The government introduced a revision to a total of 19 tax enforcement decrees including the Income Tax Act, Corporate Tax Act, Inheritance and Gift Tax Act, National Tax Collection Act, Securities Transaction Tax Act, and Individual Consumption Tax Act, among others. Major revisions to the 2016 tax enforcement decrees are as follows:
Fostering New Growth Industries
Expand Tax Credit for R&D in New Growth Industries
For both large and medium-sized companies, increase the R&D tax credit rate on new growth sectors for up to 30 percent.
- Total 11 Areas: 1) future automobile technology, 2) artificial intelligence, 3) next generation SW and information security, 4) contents, 5) next generation electronic information device, 6) next generation broadcasting communication system, 7) bio-health innovation, 8) new energy industry and environment, 9) composite materials, 10) robotics, and 11) air and aerospace technology.
Increase Tax Support for FDI Companies in New Growth Industries
Restructure tax incentives for FDI companies engaged in high-tech businesses in order to boost investment in new growth sectors.
- The revised tax benefits target new growth engines and R&D in key technologies.
- A full exemption is provided in the case that the amount of deductible earning is 80 percent or more of the total business profits.
Support Restructuring
Tax Deferral for Domestic Companies in Overseas Mergers of Full Subsidiaries
- For profits derived from mergers between foreign-based wholly owned subsidiaries (e.g. deemed dividend), domestic shareholder companies are afforded a tax deferral provided that the equivalent benefit has been granted in the relevant foreign countries.
Strengthen Tax Measures on Financial Instruments
Increase the current level of threshold for major stakeholders subject to capital gains tax for listed shares
Impose capital gains tax on KOSPI 200 ELW
- Under the current system, only KOSPI 200 futures and options are subject to capital gains tax. However, the revised measure also includes KOSPI 200 ELW, effective from April 1, 2017.
Lower the tax exemption threshold on the long-term deposit-type insurance payments (10 years and more)
Broaden the tax base on interests and dividends earned from new financial instruments
- The current tax base is limited to the interests and dividends derived from those instruments originally developed and sold by financial institutions, when combined with derivatives (e.g. foreign currency deposit + forward exchange rate → foreign currency swap deposit).
- The revised measure broadens the current tax base by including those instruments that are NOT originally developed but sold by financial institutions (e.g. overseas low interest bonds + forward exchange rate).
Please refer to the attached PDF file for further information.