10 January 2025 Korea enacts 2025 tax reform bill - Korea's 2025 tax reform, enacted on 31 December 2024, includes additional clarifications on the global minimum tax rules to reflect the OECD BEPS 2.0 Pillar Two.
- These rules, outlined in this Alert, will be effective for fiscal years beginning on or after 1 January 2025, unless otherwise specified.
- Taxpayers should review the rules to determine their impact on Korean operations.
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On 31 December 2024, Korea enacted the 2025 Tax Reform Bill (the 2025 Tax Reform) after it was passed by Korea's National Assembly on 10 December 2024. Unless otherwise specified, the 2025 Tax Reform will generally become effective for fiscal years beginning on or after 1 January 2025. This Alert summarizes the key features of the new and amended tax laws. Clarifications of the global minimum tax rule The 2025 Tax Reform introduces and clarifies the Global Anti-Base Erosion (GloBE) rules under Korea's current Adjustment of International Taxes Act (AITA) to reflect the administrative guidelines and commentary for the Organisation for Economic Co-operation and Development's (OECD's) Pillar Two GloBE rules. This rule will be effective for reporting beginning on or after 1 January 2025. Details regarding the GloBE rules in the 2025 Tax Reform are outlined below. 2025 Tax Reform | Details | Special provisions for loss treatment in the first year of application | Constituent entities (CE) may select 15% of net GloBE losses as a deferred tax asset in lieu of the total deferred corporate tax adjustment amount (exceptions apply). | New allocation methods for additional top-up taxes under supplementary rules for income inclusion (known as Undertaxed Profit Rule (UTPR)) by the CE | A new allocation method applies in case of nonpayment after applying the designated allocation, e.g., allocating the unpaid tax entirely to the ultimate parent entity if located in Korea. A new allocation method applies if additional top-up tax amounts are not paid by the immediately preceding fiscal year. | Exception to de minimis exclusion | The de minimis exclusion would not apply for the fiscal year if there is any change in the country's status of meeting the conditions (e.g., post-filing adjustments after the GloBE return is filed). | New provision for the safe harbor rules | Top-up tax of the qualified country may be deemed to be zero, subject to conditions stipulated in the Presidential Decree of the AITA. Top-up tax of the UTPR country is deemed to be zero during a transition period starting on or before 31 December 2025, and ending on or before 30 December 2026, subject to conditions. | Special provision on GloBE information return filing due date | If the return filing due date falls before 30 June 2026, the reporting due date will be extended to 30 June 2026. |
Deferral of taxation on virtual assets 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. Under the 2025 Tax Reform, application of this tax rule for virtual assets will be postponed from 1 January 2025 to 1 January 2027. Extension of application period for R&D tax credits and Integrated Investment tax credits for National Strategic Technologies The 2025 Tax Reform extends the sunset period of current research and development (R&D) tax credit from 20% to 50% for national strategic technologies (seven fields) and new growth/original technologies (14 fields) from 31 December 2024 to 31 December 2027. This three-year extension will also apply to the current integrated investment tax credits from 15% to 25% related to national strategic technologies. Additionally, the 2025 Tax Reform includes an increment in the deduction rate for investments exceeding the average investment amount of the previous three years, from 3% or 4% (depending on the circumstances) to 10%, for integrated investment tax credits. Introduction of new rules for foreign investors with respect to domestic exemptions on government bonds Items | Current tax rule | 2025 Tax Reform | Simplification of withholding tax procedures for exemption on government bonds for foreign investors investing through overseas investment vehicles (OIV) | Under the current Korean Corporate Income Tax Law (CITL), submission of the tax- resident certificate along with the exemption application is required for a foreign individual or corporate investor investing through a private OIV to utilize the domestic withholding tax exemption for interest and capital gains derived from government bonds and monetary stabilization bonds. A public OIV may apply the exemption application as a deemed beneficial owner without disclosure of the ultimate foreign individual or corporate investors. | The 2025 Tax Reform simplifies the withholding tax procedure in which foreign individuals or corporate investors investing in government bonds and monetary stabilization through either private or public OIVs may apply for the domestic withholding tax exemption by submitting the exemption application with OIV's resident tax certificate as a deemed beneficial owner. | Introduction of new refund claims rule for foreign investors on domestic tax exemption for government bonds | Under the current Framework Act on National Taxes, foreign individuals and corporations may make refund claims solely through Korean withholding tax agents upon failure to receive withholding tax exemption on income derived from government bonds. | To ease the tax refund process for foreign investors, the 2025 Tax Reform allows for foreign investors may make the relevant refund claim directly. |
Tax exemption applications and payment statements requirement for Korean-sourced personal service income Items | Current tax rule | 2025 Tax Reform | Tax-exemption application requirement for Korean- sourced personal service income | Under the current Korean CITL, Korean-sourced business income and personal service income paid to foreign individuals and corporations with no permanent establishment in Korea are entitled to receive the Korean tax exemption without application procedures. | The 2025 Tax Reform makes it mandatory to submit tax-exemption applications/payment statements for Korean- sourced personal service income paid to a foreign individual or corporation effective for income/payment paid on or after 1 January 2026. | Tax payment statement requirement for Korean- sourced personal service income | Currently, Korean sourced personal service income is excluded from submission of the payment statement to the competent tax office. |
Withholding tax for foreign professional athletes Under the current Korean CITL, business income paid to individuals is generally subject to the Korean withholding tax (WHT) at the rate of 3.3%, inclusive of 10% local income tax, and business income paid to foreign professional athletes for a contract period of three years or less is subject to a 22% WHT, inclusive of 10% local income tax. The 2025 Tax Reform stipulates that business income paid to foreign professional athletes after 1 January 2025 will be subject to a 22% WHT rate, inclusive of 10% local income tax, regardless of the contract period. | * * * * * * * * * * | | Contact Information | For additional information concerning this Alert, please contact: 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 | | Published by NTD’s Tax Technical Knowledge Services group; Carolyn Wright, legal editor |
Document ID: 2025-0206 |
