Tax Revision Bill, 2019

 

2019 Revision Focuses on Boosting the economy and

Supporting Industrial Innovation

 

Background

 

The economy has to deal with weakening growth potential, slowing global economies and increasing external uncertainties.  Although income distribution indicators have improved and social safety nets have strengthened, low income groups continue to suffer and the population is aging.  Korea needs active fiscal policies to support future growth engine development and respond to aging population. Against this backdrop, the government has drawn up the 2019 tax revision bill.

 

Tax Revision

 

The 2019 tax revision focuses on the following.

 

- Boosting the economy and supporting industrial innovation

- Pursuing inclusiveness and fairness

- Broadening the tax base and improving the tax system

 

 

1. Boosting the economy and supporting industrial innovation

 

Promote investment

 

- Expand facility investment tax reduction temporarily for one year if the investment is made to improve productivity:  From 1 to 2 percent (large conglomerates), from 3 to 5 percent (medium sized companies) and from 7 to 10 percent (SMEs)

- Extend the tax reduction for manufacturing facility investment and safety facility investment by two years, as well as expand industries eligible for the tax reduction:  Include pharmaceutical and logistics industries if they invest in high-tech equipment and facilities, and for safety investment tax reduction, expand it to energy pipelines, LPG facilities and all equipment and facilities if the investment is aimed at improving safety

- Extend the 50 percent accelerated depreciation by six months to June 30, 2020, and expand it to investments made over the second half to improve productivity and save energy in addition to the investments made to foster innovation, such as R&D facilities investment and new growth engine facilities investment

- Give accelerated depreciation of 75 percent to SMEs and medium-sized leading enterprises for their investments made over the second half

- Extend the corporate tax reduction for startups doing business in restructuring-affected areas:  Two years of 50 percent reduction in addition to 100 percent reduction for five years currently provided

- Expand the corporate investment tax reduction to 5 percent for SMEs and 3 percent for medium-sized leading enterprises if they are doing business in regulation-free zones

- Impose alcohol content-based tax rates on beer and unstrained rice-wine

- Ease requirements for corporate inheritance tax incentives: Obligations accompanying the tax incentive, such as staying in the same business and retaining employment for 10 years, to be cased to 7 years, and changes in business to be allowed within a broader category

- Ease requirements for paying inheritance taxes in installments

- Expand the installment tax payment and grace period given to capital gains made due to moving manufacturing facilities from a two year installment with two year grace period to a five year installment with five year grace period

- Expand the tax deduction for losses incurred in the previous year from 60 percent of the earnings for the year to 100 percent

- Make up to 6 million won of maintenance costs tax-deductible, an increase from 3 million won

 

Promote consumption and exports

 

- Raise the purchase ceiling for locals at downtown and arrival duty-free shops from US $3,000 to US $5,000

- Provide foreign visitors with an on-the-spot tax refund for up to two million won worth of purchases

- Extend the VAT refund given to foreign tourists for their medical service costs and accommodation costs by one year

- Government to pay the cost of cargo security check for goods imported by SMEs and medium-sized enterprises

- Give tariff cuts to SME and medium-sized leading exporters when they import materials to build manufacturing facilities

 

Support industrial innovation

 

- Expand the R&D tax reduction for new growth engines and source technologies to biobetters, systems-on-the-chip and other technologies that will lead innovation-driven growth

- Extend the tax reduction carry-over to the next 10 years, which is given to R&D investment in new growth engines and source technologies

- Provide R&D tax reduction to foreign research institutes for projects commissioned by Korean companies

- Raise the ceiling of the capital gains tax exemption for stock options exercised by venture employees from 20 million won a year to 3 million won a year

- Expand the capital gains tax exemption given to venture capital from the sales of old stocks to the sales of new stocks

- Provide a 50 percent income tax cut for five years to Korean talents returning from overseas

 

 

2. Pursuing Inclusiveness and Fairness

 

Support employment

 

- Extend the 10 percent tax reduction for large corporate investment in SME employee welfare funds to 2022

- Expand the corporate investment tax reduction given to SMEs and medium-sized enterprises participating in local government job programs to up to 10 percent

- Expand the tax support for employing women returnees, a two year tax cut of 15-30 percent for labor costs incurred by hiring women returnees, to cover those quitting jobs due to marriage and child education, in addition to childbirth and childcare, as well as to include those returning to work after 3 to 15 years from quitting, instead of 3 to 10 years

 

Seek inclusiveness

 

- Extend the income tax deduction for credit card use by three years to 2022, and offer 40 percent deduction for spending via ‘Zero Pay’, a fee-free mobile payment system

- Extend the VAT reduction for purchasing tax-free farm products by two years to 2021

- Raise the income ceiling for work incentives:  Single households earning less than 4 million won a year will be made eligible and 7 million won a year for single income families

- Expand the tax support for private pension plans:  1) Allow transferring individual savings accounts to pension accounts when matured and raise the tax-free ceiling to 3 million won, 2) temporarily raise the tax-free ceiling of pension savings accounts to 6 million won a year for those aged fifty or older, the current tax-free ceiling of 4 million won maintained for those earning more than 120 million won a year and 3) apply lower retirement income tax rates to long-term pension plans (longer than 10 years)

- Adopt a long-term tax payment plan for small business owners whose delinquent taxes are 50 million won or less:  Payments can be made in installments over up to five years, and the business owners need to be retrying after failure for the tax installment plan to be applied.

 

Seek fairness

 

- Work on nonprofit organizations, focusing on making them more responsible and transparent, to help build a culture of philanthropy:  1) National Tax Service (NTS) to be responsible for every step needed for nonprofit organizations from nonprofit designation to business evaluation, starting on January 1, 2021, 2) Newly designated nonprofit organizations to be evaluated three years after the designation and if the evaluation finds that the organization has been run properly, it can continue for the next six years, starting on January 1, 2021, 3) NTS authorized to require budget spending specifications if the financial statements submitted are found not to be clear, starting January 1, 2021, 4) Require to spend more than 1 percent of the value of their business assets on public interest, as well as make corporate disclosure mandatory to all nonprofit organizations, and 5) Nonprofit organizations required to have their accounts audited by NTS appointees every nine years, NTS auditing for three consecutive years and for the remaining six years audits done by auditors of their choice

- Capital gains taxes on investment in subsidiaries through investment in kind to be allowed to be paid in installments, starting in 2022

 

 

3. Broadening the tax base and improving the tax system

 

Work on taxpayer protection and increase taxpayer convenience

 

- Protect taxpayers under investigation as officials in charge of taxpayer protection will monitor the investigation, as well as attend the investigation

- Give opportunities to adjust taxable income to those filing past the income report due

- Lower penalties imposed on unreported overseas financial accounts

 

Improve the tax system

 

- Lift the gift tax progressive rates imposed on largest shareholders’ stocks

- Work to increase access to NTS data by research institutes and government agencies

- Raise the ceiling of corporate car operation costs deductible without documentation to 15 million won a year

 

Broaden the tax base

 

- Adopt a 20 million won ceiling for earned income tax deduction

- Lower the severance pay ceiling for board of directors

- Make tax-free savings accounts not available to those who have ever paid capital gains taxes on their financial income over the last three years

- Work to impose taxes on patent rights registered overseas, but owned by Korean companies

- Habitual and large delinquent tax payers to be detained for up to 30 days

 

 

4. Expected revenues

 

Revenues are expected to increase around 4 billion won for the next five years due to the revision.

 

Tax Revenue Increase

(billion won)

	Total	2020	2021	2022	2023	2024 and beyond
Total	3.7	-140.5	-444.1	440.7	-1.1	148.7
Income tax	12.5	40.8	-14.5	-13.8	-	-
Corporate tax	-14.9	-3.2	-660.4	498.9	-	149.8
VAT	4.4	-79.3	80.5	5.2	-1.0	-1.0
Others	1.7	98.8	150.3	-49.6	-0.1	-0.1

 

 

5. Schedule for the revision

 

Announcement of the revision: July 25

Notice of the revision: July 26 - August 14 (19 days)

Referring to the cabinet meeting: August 27

Submission to the National Assembly: September 3

 

Please refer to the attached pdf

 

This press release is a summary of the 2019 tax revision bill.  Please refer to the Korean version for the tax revision in full.  http://www.moef.go.kr/nw/nes/detailNesDtaView.do;jsessionid=528Gh0cdqsZ+MawZSA7As4qU.node20?searchBbsId=MOSFBBS_000000000028&searchNttId=MOSF_000000000029187&menuNo=4010100