2021 Tax Revision Bill

 

2021 Revision to Support New Industries and Employment,

as well as Inclusive Growth

 

2021 Tax Revision Framework

 

The government has drawn up the 2021 tax revision bill, focusing on the following three.

 

- Promote new industries and support recovery by promoting employment, investment and consumption

- Pursue inclusive growth, such as through expanded tax support for low-income earners and small enterprises, and continue with fair taxation

- Improve tax base and work on taxpayer convenience

 

The 2021 tax revision is intended for a successful transition to a post-corona economy, and the three key policies are to be carried out as follows.

 

1. Promote new industries and support recovery

 

Promote new industries

 

1) Incentivize R&D and facilities investment in national strategy technologies, such as semiconductors, batteries and vaccines by giving them extra support[1]

2) Expand the R&D investment tax reduction given to new growth engines and core technologies

 

- Add to the up to 40 percent R&D investment tax cut such technologies as carbon emissions reduction technologies and phase 3 clinical trials for biosimilars

- Work on the careful selection of technologies for the support and extend it to the end of 2024

- Extend the tax payment deferral for the government share of investment in those technologies to the end of 2023

 

3) Promote the intellectual property market

 

- Provide tax reduction for the purchases of intellectual properties

- Expand the tax reduction for equipment investment[2] to intellectual properties

- Provide a 50 percent cut for technology transfer for two more years and a 25 percent cut for the lending of technologies

 

Support job market recovery

 

1) Promote investment in startups and ventures

 

- Provide the startup tax reduction of 50-100 percent for three more years until the end of 2024

- Expand the special tax on venture stock options, composed of non-taxable amount, payment deferral and installment plans, to employees, the tax benefit extending to the end of 2024

- Ease requirements for going public through a SPAC[3] deal

- Expand the 10 percent tax reduction given high-tech venture acquisition from a separate purchase of over 50 percent of shares to over 50 percent of share acquisition via multiple purchases throughout the year, the tax cut extending to the end of 2024

- Extend the capital gains tax deferral for all-inclusive exchange of shares to the end of 2023, as well as the capital gains tax deferral given when reinvesting in ventures

 

2) Support job creation and retention

 

- Extend the tax reduction to promote hiring until the end of 2024, as well as introduce a temporary cut of 1 million won per new hiring[4], which will end in 2022

- Ease the requirement for tax reduction of up to 30 percent of labor costs given to companies hiring women who seek reemployment with the term ‘reemployment’ extending to being hired after two years of job seeking, a change from three years

- Extend the tax reduction for corporate contributions to employees’ social security insurance until the end of 2024

- Extend the tax benefits for hiring permanent employees, up to 10 million won per employee, until the end of 2022

- Extend the job retention tax incentives, a 10 percent tax cut for labor cost reduction[5], until the end of 2023

 

Boost consumption and support businesses

 

- Expand the reshoring tax incentives of 100 percent income tax cut for five years[6] to those completing the relocation in less than two years, an increase from one year, until the end of 2024

- Give tax reduction for producing OTT contents[7]

- Provide tax incentives for moving headquarters outside the Seoul metropolitan area, 100 percent income tax cut for seven years and 50 percent cut for three more years

- Provide a special tax payment deferral if the capital gains are invested in new industries, such as in carbon neutrality, and ease the corporate debt ratio rules required after business restructuring if it is jointly done by two companies

- Provide a sales tax cut for the natural gas purchased for hydrogen production

- Extend the sales tax cut of up to 1 million won per hybrid car purchase until the end of 2022

- Expand the customs duties cut for the SME imports of smart manufacturing equipment to up to 70 percent until the end of 2022

- Provide customs duties exemption, according to the Korea-Singapore FTA, for aircraft parts imported from Singapore

- Impose a special separate tax on gains from New Deal Infra Fund for five years from the investment

- Ease beer brewing regulations concerning the use of fruit

- Ease beer manufacturing facilities regulations to promote the use of new technologies

 

2, Pursue inclusive growth and continue with fair taxation

 

Promote cooperation

 

1) Promote cooperation between businesses

 

- Expand tax cuts for early settlement of corporate drafts

- Include in the tax incentives for commercial property rent cuts the leases for which the tenants pay rent after they closed business, the tax cut extending to June 2022

 

2) Promote cooperation between workers and business owners

 

- Expand the tax cut for corporate profit sharing with employees from 10 percent of the sharing to 15 percent until the end of 2024

- Include in the deductible expenses the cost incurred due to employee stock options

 

3) Increase charitable deduction

 

- Temporarily increase tax cuts for charitable contributions to 20 percent of the amount and 35 percent for the amount exceeding 10 million won for 2021 tax returns

 

Support low-income households

 

1) Increase the earned income support and child support

 

- Raise the ceiling for the earned income support by 2 million won, 300,000 households receiving the support additionally

- Work to more accurately calculate net incomes of small businesses and self-employed to correctly reflect them in the earned income support and child support

 

2) Support workers and self-employed

 

- Extend the 70 percent income tax cut given to SME[8] employees to the end of 2023

- Provide VAT exemption for house chore and childcare services

- Extend the special VAT cut given to agricultural product purchases to the end of 2023

- Extend the special VAT cut for credit card sales to the end of 2023

- Extend the alcohol tax cut for draft beer to the end of 2023

- Do away with the mid-term VAT payment for the amount less than 500,000 won, as well as during the national disaster situation, such as the COVID-19 pandemic

- Introduce a separate tax on government bond yields for up to 200 million won worth of investment made by retail investors

- Provide tax exemption for capital gains from stock investment made via the individual savings account (ISA), as well as other tax benefits for capital gains made via the ISA, such as tax exemption for capital gains of up to 2 million won, followed by a 9 percent separate tax on the amount beyond 2 million won

 

3) Support SMEs, elderly, farmers and fishermen

 

- Expand tax returns for business losses incurred in SMEs by including the 2019 data, in addition to the 2020 data, for comparison

- Make tax payment deferral given to failed businesses available to those whose sales are below 150 million won a year

- Provide VAT exemption when senior homes are sold for mortgage repayment

- Extend the VAT and sales tax exemptions given to petroleum purchases made by farmers and fishermen to the end of 2023

- Extend the gasoline tax refund for small vehicles to the end of 2023

- Extend the tax benefits given to taxi businesses, such as VAT cuts and LPG sales tax exemption, to the end of 2023

 

4) Help young adults with asset building and housing

 

- Provide a 40 percent income tax deduction of up to 6 million won a year for long term fund investment

- Provide a tax exemption for interest earnings from fixed deposits of young adults whose earned income is 3.6 million won or less a year, or who have a total income of 2.4 million won or less a year

- Give an up to 90 percent income tax cut for funds built up by young employees, for which their employers have provided matching gifts

- Ease requirements for a time deposit account to subscribe a new home to include those earning up to 3.6 million won a year, or have income of up to 2.4 million won

 

5) Work on employment insurance for all Koreans

 

- Require workers with one year contract and free lancers to file their income every month

- Expand the electronic receipt issuance obligation to businesses of which the sales exceed 100 million won a year

- Add 19 businesses to the 95 services required to issue cash receipts, such as lawyers, doctors and private learning institutions

- Require platform businesses which provide a supply-demand match for personal services, such as driving and delivery, to submit information on the income of service providers

 

Pursue fair taxation

 

- Introduce a punishment, such as extra payment, for not filing or filing false income tax

- Expand the obligation of honest income reporting to those whose income from properties and financial assets exceeds 50 percent of the total

- Put a 1 million won a year ceiling on the income tax reduction given to those paying taxes via the association of tax payment, such as foreign company employees and fresh food dealers

- Put an end to the individual consumption tax cut given to membership purchases for golf clubs located in Jeju island

- Put a limit on income tax deduction for business losses transferred from former owners

- Put a strict limit on capital gains tax exemption when applied to the sales of new apartment purchase rights

 

3. Improve the tax base and taxpayer convenience

 

Improve the tax base

 

1) Avoid tax evasion via international transactions

 

- Require the reporting of business transactions carried out through liaison offices

- Require foreign ICT service providers to keep their business transactions with Korean buyers for five years

- Reduce the negligence fine levied on the reporting failure of international transactions if reported later or false reporting corrected

- Reduce tax evasion via controlled foreign company (CFC) by raising tax rates and taxing the amount transferred to trust funds

- Require the reporting of foreign property ownership, in addition to its acquisition, sales and rent situation

 

2) Inflict appropriate punishment for tax delinquency

 

- Make it possible for tax authorities to claim virtual assets for the payment of delinquent taxes

- Strictly sanction false invoices and receipts

- Expand investigation to find hidden assets of tax delinquents

 

Protect taxpayer rights and increase taxpayer convenience

 

1) Reduce the penalty for tax negligence

 

- Give a penalty exemption to late payments worth less than 1.5 million won

- Reduce the late payment penalty taking into consideration market interest rates

 

2) Allow tax bills corrected according to the latest developments

 

- Give the VAT returns for VAT exempt supplies for a year after the tax reporting, during which taxpayers can correct their tax bills according to the recent changes

- Allow tax bills to be corrected if there are purchases of VAT exempt supplies

 

3) Increase taxpayer convenience

 

- Apply the annually-set inflation-linked alcohol tax from April 1 to March 31

- Allow the refund of direct overseas purchases with the post-approval from customs office

- Expand the customs duties refund to purchases made on inter-Korean airline routes or sea routes

- Streamline customs procedures for importing deep-sea fishing supplies

- Adopt a state-appointed attorney to help with small taxpayers’ litigation

 

Other revisions

 

- Work for the current special tax on fund investment gains to be maintained after the introduction of a new financial capital gains tax, scheduled in January 2023

- Give a tax deduction for losses incurred to joint businesses for up to 15 years, the same tax break given to non-joint businesses in 2020

- Give an inheritance tax deduction to sons- and daughters-in-law of the deceased for homes where they have lived with the deceased

- Work on tariffs revision according to the WCO[9]’s new classification, as well as combine different tariffs to make them simple and efficient

- Strictly impose the anti-dumping duty to avoid tax evasion, such as by not specifying suppliers

 

4. Expected revenues

 

Revenues are expected to drop around 1,505.0 billion won for the next five years due to the revision.

Increased tax support for national strategy technologies and generous earned income subsidies have dragged down the expected tax revenues.

 

Tax Revenue Increase

(billion won)

	Total	2022	2023	2024	2025	2026 and beyond
Total	-1,505.0	-1,257.9	-190.1	-20.0	-19.3	-17.7
Income tax	-331.8	-572.4	291.8	-14.2	-18.9	-18.1
Corporate tax	-1.306.4	-657.2	-643.7	-3.3	-1.5	-0.7
VAT	7.3	-102.5	100.0	-	4.9	4.9
Others	125.9	74.2	61.8	-2.5	-3.8	-3.8

 

 

Tax Payer Burden Increase

(billion won)

	Working households[10]	High income households	SMEs	Large enterprises	Others	Total
Total - National strategy techs - Other than national strategy techs	-329.5 - -329.5	5.0 - 5.0	-308.6 -277.0 -31.6	-866.9 -883.0 16.1	-5.0 - -5.0	-1,505.0 -1,160.0 -345.0

 

5. Schedule for the revision

 

The tax revision requires changes in 16 Acts, and will have been submitted to the National Assembly no later than September 3.