Press Release

Embargo: Release Date: July 30, 2018

Information: Park-Eun-young (044-215-4111// Tax Policy Division
Contact Information Division)

TAX REVISION BILL, 2018

2018 REVISION FOCUSES ON REDISTRIBUTION AND SUSTAINABLE GROWTH

The 2018 tax revision focuses on the following.

- Strengthening social welfare and bringing about redistribution of income

- Promoting
romoting job creation and ‘growth through innovation’
- Pursuing fair taxation

1. Strengtheningg social welfare and bringing about redistribution of income

Strengthen social welfare

- Expand the EITC to the bottom 60 to 70 percent of earners: A total of 3.8 trillion won will be
made available to 3.34 million households, an increase from 1.2 trill
trillion
ion won to 1.66 million
households
- Expand the eligibility of child benefits to those receiving survivor benefits and increase the
payment from 300,000-500,000
500,000 won a month to 500,000-700,000 won
- Raise the income tax exemption ceiling for daily workers from 100,000 won to 150,000 won
- Give young adults1 a tax exemption for interest earned from their new home me purchase savings
accounts: Eligible to those earning less than 30 million won annually and not owning a ho house for
up to 5 million won of interest earned from the savings account for new home purchases
- Give young adults in their mandatory military service a tax exemption for interest earned from their
military savings accounts
- Expand the tax reduction for 15 percen
percent medical expenses to postpartum care for the expenses
exceeding 3 percent of annual salaries with the maximum of up to 2 million won won: Employees
earning less than 70 million won a year and business owners earning less than 60 million won a year
will be eligible for the new medical expense deduction.
- Increase tax incentives for charitable donations: Give a tax reduction for 15 percent of charitable
donations if they are worth 10 million won or less and 30 percent if they are worth more than 10
million won, and allow social enterprises to include in their business expenses up to 30 percent of
their mandatory donations
- Give a 50 percent income tax reduction to SME employees for the incentives given as profit
sharing, and provide those SMEs with 10 percent tax reduction for the profit sharing

Revise property taxes

- Raise property tax revenues to around 1 percent to GDP by 2022, near the OECD average of 1.1
percent to GDP

1
Aged 15-34
MINISTRY OF ECONOMY AND FINANCE
www.moef.go.kr
- Separately tax housing rental income from other incomes if it does not exceed 20 million won a
year starting in 2019
- Increase expense deductions for small-scale housing rental income (20 million won or less annually)

Regulate overseas tax evasion

- Expand the duty of reporting overseas financial accounts held by overseas companies to individual
owners of the company with 100 percent ownership, including beneficial owners, an expansion from
corporate owners of the company
- Require corporations, in addition to individual citizens, to explain unreported offshore accounts
- Increase penalties for not reporting overseas property transactions, and require explanation for
unreported investment overseas, including property investment
- Extend the statute of limitations for offshore transactions to 10 years
- Raise exit taxes: Impose up to 25 percent taxes on the sales of corporate shares and introduce a
tax on the sales of property shares

Reform tax support

- Impose a VAT on overseas cloud services

- Put an end to tax free interest and dividend income earned from financial cooperative accounts:
applied to nonmembers from 2019 and members from 2022
- Make virtual currency dealers no more eligible for SME tax reduction
- Place stamp duties on mobile gift certificates as placed on paper gift certificates
- Make landlords no more eligible for small business expense deduction for pension contributions
- End the derivatives sales tax exemptions

2. Promoting job creation and ‘growth through innovation’

Promote job creation

- Give increased tax support to businesses investing in areas affected by restructuring2: A five year
corporate and income tax exemption for startups, increased tax reduction for business asset
investments, expanded SME tax support to medium-sized enterprises, which includes support for
employee retention and reduced work hours
- Give SMEs and medium-sized enterprises a one-year labor cost deduction for returnees from
childcare leave (more than 6 months), applicable to both mothers and fathers
- Revise the zone-specific tax support program with its focus on job creation: Set stricter
requirements as to job creation and employee retention while relaxing requirements as to investment,
and increase tax reduction for creating jobs
- Revise the tax reduction for jobs created to cover more young adults and longer periods (up to 3
years for SMEs and medium-sized enterprises, and up to 2 years for large enterprises)

2
Nine areas designated as restructuring-affected, such as Gunsan, Geoje, Tongyeong, Goseong, Changwon, Jinhae,
Ulsan, Mokpo, Yeongam, and Haenam
MINISTRY OF ECONOMY AND FINANCE
www.moef.go.kr
 Annual tax reduction for jobs created, revised

(thousand won, per employee)

SMEs Medium-sized Large
Seoul Outside the enterprises enterprises
metropolitan Seoul
area metropolitan
area
All jobs created 7,000 7,700 4,500 -
Young adult Ordinary
10,000 11,000 7,000 3,000
permanent enterprises
jobs Enterprises
employing
15,000 16,000 12,000 8,000
more young
adults

- Expand the reshoring tax reduction to large enterprises moving only part of their operations back
into the country
- Extend the SME tax reduction for social insurance contributions paid for new employees by three
years, and also extend by three years the tax reduction for creating permanent positions for
temporary employees to fill, applied to both SMEs and medium-sized enterprises

Support ‘growth through innovation’

- Allow accelerated depreciation for facilities invested between July 1, 2018 and December 31, 2019,
if they are to boost ‘growth through innovation’
- Increase tax support for R&D investment: Expand the R&D tax reduction of up to 40 percent of
the investment to blockchain technologies and quantum computing
- Increase tax support for facility investment made to commercialize R&D outcomes: Ease
requirements for the facility investment tax reduction of up to 10 percent of the investment from
investing in R&Ds more than 5 percent to total sales to more than 2 percent
- Increase tax exemptions for employee inventor rewards from up to 3 million won to up to 5 million
won annually
- Extend the period of the 50 percent income tax reduction given to foreign engineers from 2 years to
5 years
- Allow medium-sized enterprises’ contributions to employee reward programs to be tax-deductible,
in addition to the contributions made by SMEs
- Give startup accelerators an expanded capital gains tax exemption: Stocks purchased through
private equity funds to be capital gains tax-exempt in addition to stocks purchased directly or stocks
purchased through public equity funds
- Give startup accelerators a VAT exemption for their services
- Make pension funds’ arbitrage dealing in the KOSDAQ free of stock transaction taxes
- Lower the withholding tax rate on interest earned from P2P lending3 from 25 percent to 14 percent
to promote the sharing economy in the financial services industry
- Expand a 30 percent tax reduction for electric vehicle rentals to hydrogen fuel cell vehicle rentals:
Vehicle rental businesses more than 50 percent of which services involve the renting of electric cars

3
P2P financial service providers need to be approved to provide services
MINISTRY OF ECONOMY AND FINANCE
www.moef.go.kr
and hydrogen cars will receive the tax reduction, an expansion from electric cars making up more
than 50 percent of their services to boost the hydrogen fuel cell vehicle market

3. Pursuing fair taxation

Reform environmental taxes

- Revise environmental taxes to reflect the amount of pollutants emitted: Raise the soft coal tax rate
and lower the LNG tax rate, so that the soft coal contributions will be twice the LNG contributions
- Temporarily provide in 2019 a 70 percent individual consumption tax reduction for new vehicle
purchases if they follow the scrapping of old diesel vehicles
- Continue to impose transportation, energy and environmental taxes until the end of 2021
- Keep the individual consumption tax reduction for hybrid vehicles until the end of 2021

Other revisions

- Allow the renewal of the 5 year license for duty free shops: Up to 10 years for large retailers and
up to 15 years for small- or medium-sized retailers
- Cut the duty free shop license fee to 0.01 percent of the sales for SME products sold at large
retailers
- Increase tax exemption for dividend income earned from subsidiary shares in order to encourage
holding companies to raise shares in their subsidiary companies

Shareholding in subsidiary companies Tax free dividend income

Listed Unlisted Current Revision
Over 40% Over 80% 100% 100%
30% - 40% 50% - 80% 90%
80%
23% - 30% 40% - 50% 80%

- Suspend the sunset of the income tax reduction for credit card payments by 1 year
- Revise the tax reduction for facility investment according to two categories: Up to 10 percent
reduction for investments to improve safety or welfare, and up to 7 percent reduction for R&D
investment or other investments to improve productivity
- Ease regulations on death tax fraud: Death tax reduction for up to 50 billion won, which is given
when family businesses are inherited, has been collected 100 percent when more than 20 percent of
the inherited assets are sold within 10 years, but according to the revision, the amount to be collected
will depend on how much of the assets are sold.

Increase taxpayer convenience

- Lower late payment charges, as well as penalties for VAT filing mistakes
- Look into all factors that could have affected the tariff if there is a request before the reporting of
the price
- Lift the security deposit requirement for the late payment of tariffs, applied to products imported by
exporters for their production of goods to be exported

MINISTRY OF ECONOMY AND FINANCE

www.moef.go.kr
4. Expected revenues and tax burden

Revenues are expected to have fallen 2.5 trillion won for the next five years due to the revision.

Tax revenue increase

(y-o-y, billion won)
Total 2019 2020 2021 2022 2023 and beyond
Total -2,534.3 -3,281.0 562.1 -400.0 466.4 118.2
Income tax -3,007.3 -3,899.6 802.4 -84.6 101.1 73.4
Corporate tax -458.1 -189.2 -366.0 -314.6 366.1 45.6
VAT -93.9 -130.8 39.3 -0.8 -0.8 -0.8
Others 1,025.0 938.6 86.4 - - -

Tax payer burden increase

(billion won)
Working class¹/SMEs High income earners/Large conglomerates Others Total
-3,204.0 788.2 -118.5 -2,534.3
1. Those earning 65 million won or less a year, 150 percent of the median income

5. Schedule for the revision

Announcement of the revision: July 30

Notice of the revision: July 31 – August 16 (16 days)
Referring to the cabinet meeting: August 28
Submission to the National Assembly: August 31

MINISTRY OF ECONOMY AND FINANCE

www.moef.go.kr