2020 Tax Revision Bill

 

2020 Revision Seeks to Boost Demand and

Expand Inclusiveness

 

Background

 

With the COVID-19 pandemic hurting the global demand and the Korean economy, the government has revised the Restriction of Special Taxation Act twice this year to give tax support.  By revising the taxation act, we could provide such tax support as

 

- 50 percent tax reduction for commercial property rent cuts

- VAT cuts given to small businesses of which the revenues do not exceed 80 million won a year

- 30 percent to 60 percent corporate tax reduction for SMEs located in the disease hit areas

- One percent tax reduction for the payment made three months in advance

- Up to 80 percent tax deduction for credit card use and 70 percent individual consumption tax cuts for car purchases

 

2020 Tax Revision

 

The government has drawn up the 2020 tax revision bill to help recover from damages incurred by the pandemic, and to encourage individuals and businesses to continue going forward.  The three main focuses of the 2020 tax revision bill are

 

- Help rise from the COVID-19 crisis and promote the economy

- Pursue inclusiveness and fairness

- Combat tax evasion and protect taxpayers’ rights

 

1. Help rise from the COVID-19 crisis and prepare for a post COVID-19 economy

 

Promote investment

 

- Redesign the nine facilities investment tax incentives into one consolidated tax incentive

- Adopt negative approach to corporate investment tax incentives

- Give extra tax incentives according to the investment growth from the investment average for the last three years

- Offer higher tax deduction for investments in new growth engines, including those in the Korean New Deal

- Allow investment tax credits to be carried over for 10 years, an increase from five years

- Allow tax deduction for losses to be carried over for 15 years, an increase from 10 years

- Impose separate taxation on dividend income gained from Korean New Deal SOC investment funds (14 percent)

 

Boost consumption

 

In addition to the tax reductions adopted in the first half, such as those given for early payment, car purchases and credit card use, the government will

 

- Temporarily raise tax deduction for credit card use by 300,000 won in 2020

- Extend the individual consumption tax cut for electric car purchases by two years to the end of 2023

 

Help develop future growth engines

 

- Revise the taxes on capital gains from stock investments:  Lower stock transaction taxes by 0.02 percentage points[1] in 2021 and again by 0.08 percentage points[2] in 2023

- Introduce a tax on consolidated gains from financial investment in 2023:  The new tax to be a 20 percent semi-annual tax, and to allow loss carryover for five years, as well as up to 500 million won worth of non-taxable gains made from stock investment and equity funds

- Allow gains from funds to be included in the new taxation so that no tax will be imposed on losses

- Revise tax regulations on trustees:  Allow trustees to be responsible for corporate tax and make trustees responsible for VAT, while making property owners responsible for the comprehensive real estate holding tax and imposing inheritance tax on trusted property when the owner deceases, instead of gift tax

- Ease tax incentive requirements for reshoring:  Give tax incentives[3] to companies increasing workplaces in addition to those opening new workplaces, waive the requirement to cut overseas production by more than 50 percent, and reflect overseas production cuts in the tax support

- Increase R&D support:  Provide tax credits for SMEs’ R&D of intellectual property and redesign the foreign talent tax incentive by expanding institutions the tax incentive will cover and at the same time applying stricter qualification standards

- Allow capital gains made by venture capital to be nontaxable if the gains are from their investment in SMEs producing manufacturing materials, parts and equipment

 

2. Pursue inclusiveness and fairness

 

Expand tax support for working households and SMEs

 

- Expand simplified VAT:  Allow small businesses of which the revenues are 800 million won or less a year to pay simplified VAT, an increase from 480 million won a year and around 230,000 businesses to benefit from it, and give a VAT exemption to businesses of which the revenues are 480 million won or less a year, an increase from 300 million won a year and around 340,000 businesses to benefit from it

- Ease requirements for the Individual Savings Account (ISA) to all residents aged 19 and older

- Extend the corporate tax reduction of 5-30 percent for SMEs for two years

- Make express buses permanently VAT-free when the temporary tax cut is sunset on December 31 2020

- Give a 15 percent fuel tax cut on coaster diesel as coasters have changed their fuel to diesel according to the tighter environment regulations

 

Provide tax support to assist employment

 

- Extend the four tax support to underpin employment:  1) Corporate tax reduction for the wage increase exceeding the average increase of the last three years, 2) corporate tax reduction of 10 million won per new permanent employee if he is transferred from a temporary position, 3) corporate tax reduction of 10 percent of returning mothers’ annual salary if the returnee was from more than six months of maternity leave, and 4) corporate tax reduction of 30 percent of two year wages of the female employees who were hired after leaving work for a long time

- Include the elderly (60 years or older), along with young adults and other low-skilled workers, in the tax support designed to promote employment

 

Seek fair taxation

 

- Introduce a new income tax rate for over 1 billion won and impose 45 percent on the income exceeding the amount

- Impose a capital gains tax on virtual assets from January 1, 2021:  20 percent separate taxation for residents and withholding tax of 10 percent of sale value or 20 percent of capital gains, whichever is smaller, for foreigners

 

3. Combat tax evasion and protect tax payers’ rights

 

Combat tax evasion

 

- Impose dividend income tax on gains not distributed to shareholders and left in corporate accounts for the purpose of tax evasion:  Largest shareholders of the corporations where more than 80 percent of shares are held by one shareholder or his related parties can be subject to the tax

- Increase the corporate investment promotion tax and extend it for two years until 2022:  The 20 percent extra tax imposed on the amount left after subtracting investment, wage increase and welfare costs from 65 percent of the total income to be raised to subtracting from 70 percent of the total income and the wage increase to be subtracted from it to include employees who earned more than 800 million won for the year, a change from 700 million won

- Public benefit corporations obliged to spend more than 80 percent of their income from donated assets, such as interest and dividend income, in improving public benefit, an increase from 70 percent

- Put a limit on tax reduction given to corporations relocating outside the Seoul metropolitan area:  50 percent of investment made for 10 years and 150 million won per employee

- Expand the controlled foreign corporation (CFC) rules to include capital gains from property sales, in addition to incomes from stocks and bonds

 

Protect taxpayers’ rights

 

- Improve tax inspection:  Include the taxable period to be inspected in the notification, as well as reasons for the recalculation in the decision notice

- Issue corrected import tax invoices if there is no suspected fraud

- Work to find ways to provide samples of individual income tax returns filed to the National Tax Service

 

4. Expected revenues

 

Revenues are expected to increase around 67.6 billion won for the next five years due to the revision.

 

Tax Revenue Increase

(billion won)

	Total	2021	2022	2023	2024	2025 and beyond
Total	67.6	5.4	333.2	-912.6	644.1	-2.5
Income tax	2,231.0	-8.3	634.8	803.6	803.4	-2.5
Corporate tax	-701.1	-352.5	-348.6	-	-
VAT	-374.7	-136.2	-280.2	39.5	2.2
Stock sales tax	-2,380.1	-404.8	-36.8	-1,777.0	-161.5
Others	1,292.5	907.2	364.0	21.3	-

 

Tax Payer Burden Increase

(billion won)

Working Class/SMEs	High Income Earners/Large Conglomerates	Others	Total
-1,768.8	1,876.0	-39.6	67.6

 

 

5. Schedule for the revision

 

The tax revision requires changes in 16 Acts, and will have been submitted to the National Assembly by September 3.