Executive summary

On 23 December 2025, Korea enacted the 2026 Tax Reform Bill (the 2026 Tax Reform), which Korea's National Assembly had passed on 2 December 2025. Unless otherwise specified, the 2026 Tax Reform will generally be effective for fiscal years beginning on or after 1 January 2026.

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

Detailed discussion

Introduction of Qualified Domestic Minimum Top-up Tax (QDMTT) of the global minimum tax rules

The 2026 Tax Reform introduces QDMTT of the Global Anti-Base Erosion (GloBE) rules under Korea Adjustment of International Taxes Act (AITA) to secure the right to tax low-taxed domestic constituent entities (CE) under the Organisation for Economic Co-operation and Development's (OECD's) Pillar Two Global Anti-Base Erosion (GloBE) model rules, commentary and administrative guidance. QDMTT will be effective for the reporting fiscal years beginning on or after 1 January 2026.

Details regarding the QDMTT in the 2026 Tax Reform are outlined below.

* KRW is the acronym for South Korean Won.

Changes in corporate income tax rate

The 2026 Tax Reform includes a one-percentage-point increase in each of the four corporate income tax brackets as below. As a result, the corporate rates are increased from 9%, 19%, 21% and 24%, to 10%, 20%, 22% and 25%, effective for fiscal years beginning on or after 1 January 2026.

The following table summarizes the current and enacted rates:

Local income tax at a rate of 10% should be imposed in addition to the above rates.

Changes in Securities Transaction Tax Rate

To enhance tax fairness, the 2026 Tax Reform increases securities transaction tax rates on securities traded on Korea's stock exchange. Enacted rate will be effective for the securities transferred on or after 1 Jan 2026.

The following table summarizes the enacted changes:

**KOSPI is the acronym for the Korea Composite Stock Price Index. An agricultural and fishery community special tax would also be imposed, at a 0.15% rate, in addition to securities transaction tax.

***KOSDAQ is the acronym for Korea Securities Dealers Automated Quotations.

However, the current tax rates continue to be applied to securities transaction on the Korea New Exchange (KONEX) and others (e.g., securities traded over the counter, non-listed securities traded).

Clarification of the scope of Korean-sourced other income

Under the current Korean Corporate Income Tax Law (CITL), if a foreign corporation derives gift income derived from an asset located in Korea, this income is classified as Korean-sourced other income, subject to the Korean withholding tax (WHT) at 22%, including local income tax, unless treaty relief is available.

The 2026 Tax Reform expands the scope of gifts for cases in which significantly low consideration is paid and received for the sale of an asset located in Korea. Effective as of 1 January 2026, if the difference between the consideration and the fair market value is 30% or more of the fair market value, such difference is taxed as Korean-sourced other income.

New treaty application procedure for entitlement to reduced treaty rate

The current Korean CITL requires any withholding agent or income payer that wants a reduced tax rate under the tax treaty to maintain a treaty application for the entitlement of the reduced tax rate for five years from the day following the statutory withholding tax payment deadline but does not require the relevant application be submitted unless it is requested by the Korean tax authority.

Under the 2026 Tax Reform, a withholding agent or income payer should submit the application for the entitlement of reduced treaty rate to the tax authorities within two months from the end of the year in which the income is paid. This will be effective for an income paid on or after 1 January 2026.

New addition of the scope of Korean-sourced dividend income of foreign corporations

Prior to the 2026 Tax Reform, the dividend equivalents from over-the-counter derivatives (e.g., total return swaps) were not included in the scope of foreign corporations' domestically sourced dividend income.

In the 2026 Tax Reform, the Korean sourced dividend income of foreign corporations includes the dividend equivalents from over-the-counter derivatives transactions paid on or after 1 January 2026.

Rationalization of the scope of taxation for dividends out of capital reserve reductions

Under the current Korean CITL, dividend distributions that Korean corporations make out of capital reserves (e.g., paid-in capital in excess of par value) to foreign shareholders have generally been treated as nontaxable.

The 2026 Tax Reform introduces a new rule for such dividends received on or after 1 January 2026; specifically, these dividend distributions will become taxable to the extent they exceed certain shareholders' (e.g., major shareholders of listed companies) acquisition costs for the shares.

Implications

MNE Groups with operations in Korea should review these changes to ensure compliance with the new QDMTT requirements, prepare for the higher corporate income tax rates and procedural change regarding applying for the treaty rate.