2023 Tax Revision Bill 

2023 Revision Bill to Boost the Economy and Stabilize People’s Livelihoods and Respond to Structural Issues

2023 Tax Revision Framework

The government has drawn up the 2023 tax revision bill, focusing on the following directions.

- Enhance economic vitality mainly in private sectors by boosting export, investment and domestic demand

- Improve people’s livelihoods by easing tax burdens for low- and middle-income households and supporting the self-employed and small and medium-sized enterprises (SMEs).

- Prepare for the future by addressing demographic and regional crises by promoting childbirth and child-rearing as well as balanced regional development

- Improve taxpayers’ convenience and tax fairness by establishing a taxpayer-friendly environment and securing larger tax revenue bases

The 2023 tax revision aims to invigorate the Korean economy, stabilize people’s livelihoods and bolster capacity to address structural crises. To this end, the four key policies are to be carried out as follows.

1. Enhance economic vitality by boosting export, investment and domestic demand

1-1. Boost investment and employment

1) Expand taxation support for video content investments

- Raise tax incentives at a substantial rate for the video content production costs

- Introduce a new tax deduction (3%) for investments made by SMEs in the production of video content

2) Foster national strategic technologies and new growth engine and source technologies

3) Enhance taxation support for reshoring companies by expanding income and corporate tax reduction and extending its applicable period as well as easing the requirements for receiving tax incentives

4) Introduce tax credits for investments in overseas resource development 

5) Reduce individual consumption taxes for the LPG used to produce hydrogen

6) Extend the special tax reduction period for investments in R&D and new renewable energy by 3 years

7) Boost the inflow of skilled foreign workers

  - Extend the income tax cut for foreign engineers for another 5 years (up to December 31, 2028)  

  - Extend special taxation for foreign workers1 for another 5 years (up to December 31, 2028)

8) Raise the upper limit of non-taxation benefits for deep sea fishing vessels and oceangoing crews, and overseas construction workers (3 million won → 5 million won)

9) Extend the special tax reduction for employment

- Extend the income tax reduction period for employees of SMEs by 3 years

- Extend the tax deduction period by 1 year to December 31, 2024 for SMEs converting irregular

employees to permanent status

10) Raise tax refund shopping benefits for foreign tourists                                 

- Lower the minimum threshold for tax refund from 30 thousand won to 15 thousand won per purchase and

- Increase the immediate refund limit from 500 thousand won to 700 thousand won per refund as well as the in-store tax refund limit from 5 million won to 6 million won 

1-2. Strengthen corporate competitiveness

1) Alleviate burdens of taxation from family business succession

 - Increase the 10% tax bracket for gift tax (from 1 to 6 billion won → from 1 to 30 billion won) on family business succession

 - significantly extend the installment payment period (5 years → 20 years)

2) Establish a special provision to expand the Allowance for Loan and Lease Losses for domestic construction companies providing loans to their overseas subsidiaries

3) Adjust the timing of the enforcement of the global minimum corporate tax system

 - Enforce the Income Inclusion Rule (IIR)2 from the date of January 1, 2024

 - Postpone the enforcement of the Under-taxed Profit Rule (UTPR)3 until January 1, 2025

4) Relax the requirements to be recognized as subsidiaries (ownership percentage 5% → 2%) that are subject to non-inclusion of gains from capital transaction in gross income for companies developing resources overseas

5) Expand tax support for universities when they acquire substitute assets for the purpose of making profits                                                                                                                                                          

6) Rationalize the scope of partnership taxation for the avoidance of double taxation

7) Extend the carried-forward taxation period for in-kind investment made for the purpose of establishing or converting to a holding company by 3 years

1-3. Invigorate business startups and ventures

1) Increase the non-taxable amount of employee invention remuneration (5 million won → 7 million won)

2) Provide tax benefits to revitalize private venture master funds at each stage of investment, operation and liquidation

   ① Investment: Establish a tax credit scheme for corporate investors as well as a 10% income tax deduction for individual investors

② Operation: Provide VAT exemption on the asset management and operational services provided by private venture fund management companies to their master funds

③ Liquidation: Provide non-taxation benefits on profits from the transfer of stocks and shares of start-ups, venture companies which are acquired by individuals and private venture fund management companies

3) Expand tax credits for the mergers and acquisitions of SMEs in the area of technological innovation by revising upward the technology value subject to tax deduction

2. Improve peoples’ livelihoods by easing tax burdens

2-1. Alleviate economic burdens of low- and middle-income households

1) Increase the income tax deduction limit for the interest on long-term housing mortgage loans and raise the housing price criteria eligible for the deduction (500 million won → 600 million won)

2) Raise the tax deduction limit for housing subscription savings

(2.4 million won → 3 million won per year)

3) Extend the period of non-taxation benefits for deemed rents of small-sized houses by 3 years

4) Temporarily increase the income tax deduction rate by 10%p for credit card spending in traditional markets (40 → 50%) and cultural events ( 30 → 40%) until the end of 2023

5) Temporarily raise the tax deduction rate for donations exceeding 30 million won (30 → 40%)

6) Provide the value-added tax (VAT) exemption for veterinary expenses for approximately 100 most common pet diseases   

7) Extend the applicable period for fuel tax refunds for light vehicles by 3 years

8) Repeal the indexation system and adjust a flexible tax rate within a ±30% range of the CPI for taxation on beer and raw rice wine

9) Extend the temporary tax deduction period on draft beer4  for another 3 years

10) Extend tax exemption for oil used for the agricultural, forestry and fisheries businesses by 3 years

11) Extend VAT exemption for heating services for permanent rental houses by 3 years

12) Extend VAT exemption for meal services in schools and factories by 3 years

2-2. Support for small business owners and SMEs

1) Increase deductible expenses by 10% for corporate business promotion costs spent in traditional markets

2) Establish a new VAT refund scheme for vehicles used for privately operated taxis replacing the current VAT exemption system

3) Provide tax deduction benefits to financial institutions for their contribution to a credit repair company(Happiness Fund)

4) Expand SME owners eligible for applying the special tax reduction for comeback and extend the applicable period by 3 years

5) Extend the special provision for arrears collection on small business owners by 1 year from 2026 to 2027

6) Extend the applicable period for tax credits for Nice landlord5 until the end of 2024

7) Extend the special VAT deduction period for small businesses by 3 years

8) Extend tax credits on medical, education expenses and monthly rent for compliant business owners by 3 years

9) Provide tax benefits for the taxi industry through the individual consumption tax reduction for LPG

3. Preparing for the future by overcoming demographic and regional crises

3-1. Support for marriage, childbirth and child-rearing

1) Introduce new tax incentives of an additional 100 million won for donations that are given from an immediate family within 2 years before or after the date of marriage registration.

2) Ease income requirements for receiving child tax incentives from 40 million won to 70 million won, and raise the maximum payment from 800 thousand won to 1 million won per child

3) Strengthen support for childbirth and child-rearing incentives by increasing the limit of non-taxable allowances for childbirth and childcare from the current 100 thousand won to 200 thousand won per month

4) Enhance taxation support for medical expenses for children under 6 years by abolishing the current limit of tax credits (7 million won)

3-2. Assist young people’s asset building and preparation for life after retirement

1) Relax requirements for opening the Youth Leaping Account6

2) Allow young subscriber’s cross-fund conversion in youth savings accounts and extend the special income tax deduction period by 1 year

3) Extend the period of non-taxation benefits for the special saving account for troops by 3 years

4) Extend the period of non-taxation benefits for the housing subscription savings by 2 years

5) Ease taxation for pensions by raising the amount of private pension income subject to low-rate separate taxation (the current 12 million won → 15 million won)

3-3. Promote balanced regional development

1) Establish a new tax benefit scheme for the Opportunity and Development Zones7 including reduction in capital gains tax, income/corporation tax, etc.

2) Extend the validity period of the Special Tax for Rural Development by 10 years (up to June 30, 2034)

3) Extend tax benefits for start-ups in special economic zones for regional development such as R&D Special Zones and High-tech Medical Complex by 2 years (up to December 31, 2025)

4. Improve taxpayers’ convenience and tax fairness

4-1. Work to protect taxpayers’ rights

1) Extend the amount eligible for small claims tax appeals from 30 million won to 50 million won

2) Raise the amount of duty for tax appeals that relatives can represent from 30 million won to 50 million won

3) Ensure fairness in tax rulings by strengthening qualification requirements for non-standing tax court judges

4) Rationalize the taxation scheme by easing sanctions against public benefit corporations for violating the provision of mandatory expenditure

5) Expand the reduction of additional tax for underreporting if a taxpayer submits amended tax return in a certain period of time

(6 months after correction period: 30%, 6 months - 1 year: 20%, 1 year - 1year and a half: 10%)

6) Rationalize the standard amount for liquor tax evasion, which is one of the causes for revocation of liquor manufacturing licenses, through the upward revision of the amount

(raw rice wine: exceed 1 million won, beer: exceed 20 million won, etc.)

7) Abolish fees imposed by customs officers for inspecting import and export goods in areas other than customs inspection places

8) Improve language related to capital gains tax on real estate to help the public better understand the tax scheme

4-2. Tighten monitoring on tax avoidance

1) Make it mandatory for trustees to submit the information of overseas trusts

2) Make it mandatory for employees to submit stock-based compensation transaction details that a foreign parent company has provided

3) Expand the eligibility for special tax provisions for reverse charge to include nonferrous metals8

4) Impose anti-dumping tariffs on circumvention dumping

5) Expand public disclosure of tax delinquency by disclosing personal information and the amount of tax evasion of a person convicted of customs fraud worth more than 200 million won per year

6) Exclude tax evaders from the special cases for gift tax benefits

7) Redefine the concept of ‘house’ in taxation laws by further reflecting its structural characteristics

8) Strengthen restrictions on the reacquisition of liquor manufacturing and sales licenses for those whose licenses have been revoked

9) Strengthen prevention for fraudulent activities taking place during the application process for the approved exporter by providing legal grounds for penalties

4-3. Improve tax fairness

1) Expand industries subject to mandatory issuance of cash receipts to include another 13 industries9

2) Lay the groundwork for identifying service providers’ income by extending the period applicable for tax credits by 3 years for those who submit taxation data

3) Rationalize regulations on the exclusion of dividend income from gross revenue

4) Rationalize income eligible for the agricultural corporate tax reduction

5) Provide the legal basis for the establishment of a consultative body on implementing tax treaties