The Korean National Assembly has approved amendments to tax laws for 2016 which include some changes to the proposals announced in August 2015. Supporting details related to the tax law changes have also been released in amendments to relevant Enforcement Decrees. The main corporate tax law changes that may have impact on Korean inbound investors include:
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- The introduction of a limit on the amount of carried forward net operating losses that can be offset against taxable profits. Companies will only be able to utilise carried forward net operating losses of up to 80% of their taxable profits each year. Prior to this amendment, net operating losses could be carried forward for 10 years and be used to offset against a company’s taxable profits without any limitation. Small and medium sized enterprises (SMEs) are exempt from the restriction.
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- The introduction of new transfer pricing reporting requirements applicable to Korean corporations and foreign corporations with Korean permanent establishments (PEs) that have annual gross sales exceeding 100 billion South Korean won (KRW) and international related party transactions exceeding KRW 50 billion per year. Where these thresholds are exceeded, additional information relating to international related party transactions must be submitted to the authorities including a transfer pricing master file and local file by the corporate tax return filing deadline.
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- New tax credits worth KRW 5 million (KRW 2 million for large corporations) for the increase in employment of young regular workers aged between 15 to 29 years old, subject to certain restrictions. The new tax credit is available for fiscal years that include December 31, 2015.
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- Korean capital gains tax may be applicable when a foreign company disposes of shares held in a domestic company if the domestic company is regarded as being ‘property rich’, subject to the provisions of any applicable double tax treaty (DTT). For the purposes of testing whether a domestic company is property rich, the value of shares in property rich subsidiaries owned by the domestic company will now also be taken into account as real property when calculating whether greater than 50% of the company’s assets consist of real property
