| Deputy Prime Minister and Minister of Economy and Finance Choo Kyung-ho, second from left, speaks during a tax policy deliberation committee meeting at the Korea Federation of Banks in central Seoul, Thursday. To his right is CJ Group Co-chairman Sohn Kyung-shik who heads the committee. The ministry announced a tax code revision proposal aimed at revitalizing the economy on the same day. Yonhap |
Gov't to lower maximum corporate tax rate to 22% from 25%
By Yi Whan-woo
The government will extend a 50-percent cut on income taxes for highly-skilled foreign engineers to 10 years from the current five years in a bid to attract more talented workers from abroad and encourage such people to stay longer amid growing concerns of a population decline.
The government will also offer a flat income tax rate of 19 percent for foreigners who work in Korea.
The flat income tax rate has only been offered to foreigners who have worked for five years or less in Korea. They are subject to normal progressive income tax rates of between 6 percent and 45 percent afterward.
The new measures come as Asia's fourth-largest economy faces a population crisis due to a chronically-low birth rate and fast population aging that has impacted the country's growth potential.
Announced by the Ministry of Economy and Finance, Thursday, the tax incentives for foreigners are a part of the first tax code revision proposed by the Yoon Suk-yeol administration on its path for a market-oriented economy.
The tax burden, according to the ministry, has been rising too fast under the previous Moon Jae-in administration and was regarded as one of the key regulations that obstruct business innovation led by the private sector.
A total of 18 tax codes are targeted for revision, under three major goals of revitalizing the economy, stabilizing the people's livelihood and creating a taxpayer-friendly environment.
The government plans to submit the tax reform proposal to the National Assembly for approval before Sept. 2, after drafting a guideline and undergoing other related processes.
| Deputy Prime Minister and Minister of Economy and Finance Choo Kyung-ho attends a plenary session at the National Assembly in Yeouido, Seoul, Thursday. The finance ministry announced a proposal for tax code revision on the same day, with a plan to win an Assembly approval before Sept. 2. Yonhap |
“Taxation has been used excessively as a policy tool for regulation and the principles of our policy have drifted away from global standards,” Deputy Prime Minister and Minister of Economy and Finance Choo Kyung-ho said during a press briefing.
He added, “The government thus will create a tax system that meets global standards, lower tax burdens to a suitable level, lay the groundwork for economic growth and ultimately create a cycle of taxation leading to higher growth.”
To facilitate corporate investment and create more jobs, the government readdressed its plan first mentioned in June to lower the maximum income tax rate for businesses to the OECD average of 22 percent from 25 percent.
Korean companies that bring their manufacturing plants back home will be given broader incentives than in the past concerning corporate income and capital gains taxes.
To prevent small- and medium-sized enterprises (SMEs) run by generations of families from shutting down due to heavy taxes, the successors will be given a grace period on inheritance tax payments if they meet certain criteria.
A plan to impose taxes on investment gains from financial products and crypto assets from January 2023 will be postponed for two years.
To help middle- and low-income households, the government will overhaul taxable income brackets that date back 15 years and are considered outdated to properly reflect real household income.
Single home owners will be exempt from the so-called comprehensive real estate tax if their home does not exceed 1.2 billion won ($917,700) in value, up from the current 1.1 billion won.
Separate from the property tax, the comprehensive real estate tax has been levied on those with pricy homes as well as multiple home owners as a means to prevent speculation and stabilize the housing market.
But it is also criticized for going against the rule of supply and demand, especially in Seoul where housing demand is high.
To boost the pandemic-hit tourism industry, the government will raise the limit on the duty-free allowance for inbound travelers to $800 per person from the current $600.
The comprehensive tax reform is expected to result in a 13.1 trillion won fall in tax revenues.
Under the circumstances, the deputy prime minister said such fall is “not worrisome,” because it will happen throughout the next couple of years and not at once.
He also viewed the positive influence to be brought on the businesses through the tax reform will be large enough to offset the negative influence to result from a fall in tax revenues.