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January 11, 2023

Korea enacts 2023 tax reform bill

  • Korea enacted the 2023 Tax Reform Bill on 31 December 2022. It will generally become effective for fiscal years beginning on or after 1 January 2023.

  • This Alert summarizes key features of the tax reform including changes in the corporate income tax rate and expansion of annual deductibility limit for net operating losses, among others.

Executive summary

On 31 December 2022, Korea enacted the 2023 Tax Reform Bill (the 2023 Tax Reform) after it was passed by Korea’s National Assembly on 23 December 2022. Unless otherwise specified, the 2023 Tax Reform will generally become effective for fiscal years beginning on or after 1 January 2023. The Enforcement Decrees, which provide more specific guidance on the laws, are expected to be enacted in early 2023.

This Alert summarizes the key features of the new and amended tax laws.

Detailed discussion

Changes in the Corporate Income Tax (CIT) Rate

The 2023 Tax Reform introduced a one percentage point cut in each of the four CIT brackets as below. As a result, the corporate rates will be reduced from 10%, 20%, 22%, and 25%, to 9%, 19%, 21%, and 24%, effective for fiscal years beginning on or after 1 January 2023.

The following taxable summarizes the previous and enacted rates:

Taxable income (KRW)

Previous rate

Enacted rate

Up to 200 million (approx. US$139k)



Over 200 million to 20 billion (approx. US$14m)



Over 20 billion to 300 billion (approx. US$208m)



Over 300 billion and above



Expansion of annual deductibility limit for net operating losses (NOLs)

The 2023 Tax Reform expands the annual deductibility limit for NOLs from 60% to 80% of taxable income for domestic corporations. The deductibility limits for small and medium enterprises (SMEs) remain the same.1

Limits the scope of accumulated earnings tax application

The 2023 Tax Reform limits the scope of the application to corporations that are members of an enterprise group with restrictions on cross-shareholding by excluding large corporations whose net equity exceeds KRW50 billion (approx. US$40m).

In addition, the 2023 Tax Reform extends the accumulated earnings tax until 31 December 2025 after the expiration of the sunset clause on 31 December 2022.

Changes in securities transaction tax rate

The 2023 Tax Reform adjusts the timing of reducing securities transaction tax rates on securities traded on Korea’s stock exchange to revitalize the capital market.

The following taxable summarizes the proposed changes:

Stock exchange

Previous rate



KOSPI Market2








However, the current tax rules remain to be applied to securities transaction tax rates for KONEX and others (e.g., securities traded over the counter, non-listed securities traded).

Extension of the application period for special taxation for foreign workers

Under the current Restriction of Special Taxation Act, a foreign worker who starts to work in Korea before 31 December 2023, may elect to have the 19% flat tax rate (20.9% including local income tax) applied for five consecutive tax years, without deductions.3

The 2023 Tax Reform extends the application period from 5 years to 20 years from the start date of domestic services.

Deferral of taxation on virtual assets4

Under the current Korean tax law, gains derived from the disposal of virtual assets by a foreign individual or foreign corporation are categorized as “other income” subject to withholding tax at the lesser of 11% of the transfer price or 22% of the net capital gains.

The 2023 Tax Reform provides the deferral of taxation on virtual assets from 1 January 2023 to 1 January 2025.

Revival of tax relief on bonds

The 2023 Tax Reform reintroduces the tax exemption on interest and capital gains earned from transactions related to government bonds and monetary stabilization bonds by foreign individuals and corporate investors. This relief is available for both direct investments and indirect investments through qualified foreign financial institutions.

The above rule will be applied to interest payments or relevant bonds sold on or after 1 January 2023.

Introduction of special tax treatment on foreign flow-through entities

To prevent Korean investors from facing adverse tax implications arising from investments made through reverse hybrid entities, the 2023 Tax Reform introduces a special tax regime whereby a foreign entity treated as a foreign flow-through entity for Korean tax purposes may also be treated as a flow-through entity for Korean tax purposes to eliminate the hybrid mismatch between two countries. This application can be elected by filing a statutory application with the Korean tax authorities by Korean investors.


For additional information with respect to this Alert, please contact the following:

Ernst & Young Han Young, Seoul

Ernst & Young LLP (United States), Korean Tax Desk, New York

Ernst & Young LLP (United States), Asia Pacific Business Group, New York

Ernst & Young LLP (United States), Asia Pacific Business Group, Chicago



  1. SMEs and certain other companies (for example, companies under court receivership) are eligible to use the tax losses carried forward to offset 100% of taxable income.

  2. Agricultural and fishery community special tax, a rate equal to 0.15%, would also be imposed in addition to the securities transaction tax.

  3. Non-taxation, tax deductions, tax reductions/exemptions, and tax credits are forfeited.

  4. Virtual assets are electronic certificates (including relevant rights) of economic value that can be traded electronically (e.g., digital currency such as bitcoin).


The information contained herein is general in nature and is not intended, and should not be construed, as legal, accounting or tax advice or opinion provided by Ernst & Young LLP to the reader. The reader also is cautioned that this material may not be applicable to, or suitable for, the reader's specific circumstances or needs, and may require consideration of non-tax and other tax factors if any action is to be contemplated. The reader should contact his or her Ernst & Young LLP or other tax professional prior to taking any action based upon this information. Ernst & Young LLP assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect the information contained herein.


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