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  • Deputy Minister Lee Hyung-il: Tax Reforms to Support Economic Growth
    Deputy Minister Lee Hyung-il: Tax Reforms to Support Economic Growth Deputy Minister of Economy and Finance Lee Hyung-il announced on August 3 that the government will support a major economic leap for South Korea through tax reforms aimed at fostering strategic industries such as artificial intelligence (AI) and semiconductors, while also focusing on the livelihoods of citizens and local support.The 59th Tax Development Advisory Committee convened in Seoul, where Lee noted that while the South Korean economy is experiencing growth momentum due to the AI and semiconductor boom, uncertainties remain due to factors like the Middle East conflict.The Ministry of Economy and Finance has set the goal of the tax reform plan as 'supporting an irreplaceable South Korea's economic leap,' establishing three core directions: supporting potential growth rates, aiding livelihoods and local economies, and establishing fair taxation.Lee stated, "We will introduce a 'Domestic Production Tax Credit' to support items of strategic importance in terms of global economic security and green transition, aiming to boost potential growth rates." The sectors targeted include solar power, wind power, secondary batteries, semiconductors, key materials, and AI robot components.Additionally, the government plans to include future energy sectors such as small modular reactors (SMRs) and micro modular reactors (MMRs) as national strategic technologies.He also mentioned the introduction of a tiered structure that maintains certain benefits for small businesses even after graduation, and the establishment of a 'Productive Finance Individual Savings Account (ISA)' focused on long-term investments in the domestic stock market to channel funds into productive sectors of the economy.The tax reform plan also includes support for livelihoods and local economies. The government plans to significantly expand the Earned Income Tax Credit (EITC) and raise the limit for monthly rent tax deductions. A 'Youth Productive Finance ISA' will be introduced, offering a 10% income deduction on contributions for young people.Furthermore, the tax system will be restructured to provide more benefits to local areas. Lee explained, "We will apply regional coefficients to the Domestic Production Tax Credit, R&D tax credits, and integrated investment tax credits, ensuring that tax benefits for local areas are up to 1.5 times greater than those in the metropolitan area."Lee also addressed the highly discussed real estate tax policies in the reform plan. The comprehensive real estate tax rate system will be unified based on housing value, and the threshold for taxing single-family homes will be raised from the current assessed value of 1.2 billion won to 1.4 billion won.For primary residences, the tax burden will be reduced for properties valued between 2 billion and 3 billion won, while those valued between 3 billion and 4 billion won will see minimal tax changes. Lee emphasized, "We will normalize taxation for homes valued between 4 billion and 5 billion won."The reform plan also includes a focus on primary residences. For unoccupied homes and multiple properties, the basic deduction amount will be reduced, and the long-term holding special deduction for capital gains tax will be excluded. For primary residences, a maximum deduction of 80% will apply for up to 10 years.Lee stated, "For homes sold after more than 10 years of residence valued at 3 billion won or less, we will increase the basic deduction from 2.5 million won to 25 million won to reduce capital gains tax."Additionally, measures such as a maximum 50 million won capital gains tax exemption for single-home owners relocating to local areas, expanded deferral of comprehensive real estate tax payments, and temporary easing of capital gains tax for multiple property owners were also announced.The government plans to normalize the comprehensive real estate tax from next year through 2028, with a grace period for capital gains tax in 2024, followed by a phased implementation starting in 2028.Finally, Lee announced plans to revise the business succession tax exemption. He stated, "We will redesign the eligible industries, requirements, and exemption limits to align with the original intent of the system, ensuring that 'the succession of specialized skills and know-how' is eligible for tax exemptions. We will also introduce special provisions to provide tax benefits to both sellers and buyers when a business is transferred to a third party rather than a family member."* This article has been translated by AI. 2026-08-03 18:08:00
  • 2026 Tax Reform Plan Ends Tax Benefits for Hybrid Cars Amid Domestic Demand Concerns
    2026 Tax Reform Plan Ends Tax Benefits for Hybrid Cars Amid Domestic Demand Concerns The South Korean government announced that tax benefits for hybrid electric vehicles (HEVs) will end on December 31, 2026, as part of its 2026 tax reform plan. The tax benefits for electric vehicles (EVs) and hydrogen fuel cell vehicles (FCEVs) will also be gradually reduced starting next year, with a complete phase-out by December 31, 2028.According to industry sources on August 3, the government revealed a tax law amendment that will terminate the tax reductions for HEVs, including individual consumption tax, education tax, and acquisition tax, by the end of this year. The tax reduction program was introduced in 2009 to promote the purchase of eco-friendly vehicles, initially offering a 1 million won tax break per vehicle, which has since been adjusted to 700,000 won per vehicle. The government has decided not to extend the tax reduction period, stating that the objectives of the tax support have been achieved.Tax benefits for EVs and FCEVs will also be phased out. Currently, EVs receive a 3 million won tax reduction, which will decrease to 2 million won in January 2027 and 1 million won in January 2028. Similarly, the tax reduction for FCEVs, which is currently 4 million won, will drop to 3 million won in January 2027 and 1.5 million won in January 2028. Both tax benefits for EVs and FCEVs will expire on December 31, 2028.Concerns have been raised that these changes may dampen demand for eco-friendly vehicles. The elimination of the HEV tax benefit could add up to 1 million won to the actual purchase cost for consumers, as it includes 700,000 won in individual consumption tax, 210,000 won in education tax, and 90,000 won in value-added tax. For EVs and FCEVs, the loss of tax benefits translates to an increase in consumer prices by 4.29 million won and 5.72 million won, respectively.An industry representative stated, "With eco-friendly vehicles accounting for nearly 60% of new car registrations, the end of tax benefits will effectively mean a price increase for consumers, directly impacting demand. This comes at a time when both exports and domestic sales are struggling, and the industry has been relying on stable demand for HEVs and EVs to weather the storm."However, the government plans to enhance the efficiency of the program by converting tax benefits into financial support. The Ministry of Economy and Finance is currently discussing plans to expand subsidies for EVs and FCEVs with relevant departments. A government official noted, "By gradually reducing the tax benefits for EVs and FCEVs and transitioning to financial support, we aim to improve the efficiency of the policy and ensure that assistance is directed where it is needed. We believe that the subsidy program can sufficiently offset the reduced tax benefits." 2026-08-03 18:08:00
  • LG Electronics India Achieves Record Sales Nearing $4 Billion with Localized Production
    LG Electronics India Achieves Record Sales Nearing $4 Billion with Localized Production LG Electronics' Indian subsidiary has achieved record sales, driven by a localization rate of 55% in parts. The company is looking to further expand with the construction of a third factory and an increase in exports to 22 countries in Asia and the Middle East.On August 3, LG Electronics India submitted its business report for the 2026 fiscal year (April 2025 to March 2026) to the National Stock Exchange of India (NSE), reporting total annual revenue of 246.04 billion rupees (approximately $3.7 billion). This marks the highest performance since the company entered India in 1997. Over the past five years, the compound annual growth rate (CAGR) has been 9.75%, surpassing the domestic growth rate of 9%.The localization rate for key components, such as compressors and motors, has increased to 55.2%. This improvement in quality control, production speed, and price competitiveness has solidified the market dominance of locally produced electronics in India.The home appliance sector accounted for 73.8% of total sales (approximately 272.22 billion rupees), driving growth. The Pune factory is the only local manufacturer producing large-capacity side-by-side refrigerators in the 600-700 liter range, catering to premium demand, while specialized appliances designed for voltage instability and low water pressure have strengthened its market position. LG's OLED TVs hold over 60% market share in India.As the company grows, it faces challenges related to rising global raw material prices and a weakening rupee, which have increased cost pressures. Consequently, net profit (PAT) fell to 16.85 billion rupees (approximately $252.9 million), a 23.5% decrease compared to the previous year.LG Electronics plans to enhance profitability through the early completion of its third factory and increased exports to neighboring countries. A significant portion of the 180 billion rupees raised from its listing on the Indian stock market last year will be invested in expanding the Sri City factory in Andhra Pradesh. This will be LG's third production base in India, following Noida and Pune, with a total project cost of 90 billion rupees. The completion target has been moved up from next year to this year, with trial operations set to begin soon. The company aims to significantly reduce logistics costs by establishing a foothold in southern India.The 'Make in India Global' strategy to expand the overseas market for Indian-made electronics is also gaining momentum. The 'LG Essential' series, launched in India last November, will lead this initiative. The essential lineup, which includes air conditioners, refrigerators, washing machines, and ovens, is set to be rolled out in 22 countries, including Indonesia, Saudi Arabia, Vietnam, and Egypt, by the end of this year.Song Dae-hyun, Chairman of LG Electronics India, stated in the report, "The record performance in our first year of listing is a result of the explosive growth of the Indian consumer market combined with our solid business framework. We will strengthen our product and logistics competitiveness to achieve sustainable growth in line with India's rapid premiumization trend." 2026-08-03 18:08:00
  • Qualcomm and TSMC Signal Chip Price Increases, Pressuring Samsungs Premium Strategy
    Qualcomm and TSMC Signal Chip Price Increases, Pressuring Samsung's Premium Strategy Qualcomm and TSMC have announced upcoming semiconductor price increases, which are expected to raise cost pressures on Apple and Samsung Electronics' mobile businesses. As Samsung competes fiercely with Apple, analysts suggest that the company will need to raise the average selling price of its Galaxy premium products while expanding the use of its own application processor, Exynos, to maintain profitability.According to industry sources, Qualcomm plans to raise mobile chip prices by double-digit percentages starting September 1. In a letter to clients, Qualcomm explained that it has reached its limit in absorbing cost increases from suppliers.Earlier, TSMC indicated it would raise prices for semiconductor foundry services, including advanced processes below 7 nanometers, by 5% to 10% starting in 2027. This is attributed to increased investments in AI data centers, which have prioritized advanced process and memory production capabilities for server semiconductors.For Samsung, this means that the purchase price of Snapdragon chips for its Galaxy flagship devices and the production costs of its own AP could both rise. Even if Samsung reduces its reliance on Qualcomm, it may still face rising costs from TSMC and its own foundry's advanced processes.Apple has also identified a lack of advanced semiconductor production capacity as a supply chain burden. However, the company reported a 16% increase in revenue and a gross margin of 50.1% in the third quarter of the 2026 fiscal year, indicating it has managed to absorb cost increases relatively well, better than Samsung.Samsung has already begun raising prices with the Galaxy S26 series, adjusting the previously frozen prices of the Galaxy S series to reflect rising component costs.Looking ahead, price increase pressures are likely to continue. However, experts warn that simply raising prices in response to rising costs may lead to consumer resistance.Improvements in camera technology, on-device AI, battery performance, and foldable usability must support price increases to be perceived as part of a premium strategy. Samsung's efforts to increase the sales proportion of high-end products like the Ultra and Galaxy Z8 series align with this strategy.The expansion of its own AP is also seen as a critical factor for future profitability. The Galaxy S26 series features the Exynos 2600, produced using Samsung's 2-nanometer process, but the top-tier S26 Ultra still uses Qualcomm's Snapdragon regardless of region.Continued reliance on Qualcomm for the highest-priced Ultra model raises concerns about the limits of price negotiations for APs. Analysts suggest that Exynos must be applied to the top-tier products to serve as a viable alternative in negotiations with Qualcomm.However, there are concerns that rushing to apply its own chips in the name of cost reduction could burden the Galaxy brand. It is suggested that Samsung should first ensure that its chips match Snapdragon in performance, heat generation, and battery efficiency before expanding their use.Samsung possesses capabilities in AP design, foundry production, and smartphone manufacturing. If the system where the System LSI division designs chips, the foundry division produces them, and the MX division applies them to Galaxy devices operates smoothly, it could enhance Samsung's ability to respond to external semiconductor pricing policies.In the mid-range segment, Samsung is expected to continue its strategy of applying Qualcomm, Exynos, and MediaTek chips based on region and price range. This could lead to a more segmented AP strategy, securing performance and brand trust in flagship models while enhancing cost competitiveness in budget models.An industry insider noted, "The price increases from Qualcomm will be reflected in the profitability of set manufacturers after a delay as existing inventory is depleted. Exynos must be applied to the Ultra models to create real alternatives in pricing negotiations with Qualcomm."* This article has been translated by AI. 2026-08-03 18:04:20
  • 2026 Tax Reform Plan: Local Investment Tax Credits Increased by 1.5 Times, Income Tax Exemption for Youth in Declining Areas Extended to 10 Years
    2026 Tax Reform Plan: Local Investment Tax Credits Increased by 1.5 Times, Income Tax Exemption for Youth in Declining Areas Extended to 10 Years Government plans to apply differential tax credits for research and development (R&D) and facility investments based on region. Higher credits will be offered in non-metropolitan areas compared to the capital region, and young workers employed by small businesses in areas experiencing population decline will see their income tax exemption period extended to a maximum of 10 years, encouraging the relocation of businesses and workforce to these regions.The Ministry of Finance announced the '2026 Tax Reform Plan' on August 3 during a meeting of the Tax Development Advisory Committee.The government will apply higher tax credit rates for R&D expenses and integrated investment tax credits by multiplying them with regional coefficients. The same method will be applied to a newly established domestic production tax credit aimed at items with a weak domestic production base.The regional coefficients will be set at 1.0 for the capital region, 1.1 for metropolitan cities outside the capital, 1.3 for other non-metropolitan areas, and 1.5 for designated preferential areas. For example, if a business receives a tax credit of 10 billion won in the capital region, it would receive 11 billion won in metropolitan cities outside the capital, 13 billion won in other non-metropolitan areas, and 15 billion won in preferential areas.The specific scope of preferential areas will be determined based on a 'local preferential index' that reflects distance from Seoul, population, and socio-economic conditions. The government plans to finalize the specific regions by amending the Enforcement Decree of the Restriction of Special Taxation Act in February next year.In addition to corporate investments, income tax exemptions for employees of small businesses will also be applied differentially based on the location of the workplace. Currently, young workers receive a 90% income tax exemption for five years regardless of location, but under the new plan, this period will be extended to six years in metropolitan cities outside the capital, seven years in other non-metropolitan areas, and ten years in preferential areas. The capital region will remain at five years. The annual exemption limit is set at 2 million won.The exemption period for seniors over 60, people with disabilities, and those with career interruptions will remain at three years, but the exemption rates will vary: 70% in the capital region, 75% in metropolitan cities outside the capital, 80% in other non-metropolitan areas, and 90% in preferential areas. The regional exemption system will be in effect until the end of 2029.For businesses relocating to non-metropolitan areas or establishing or expanding operations in these regions, relocation allowances paid to existing employees will be exempt from income tax for three years, subject to a monthly limit. The basic non-taxable limit is set at 200,000 won per month, which can be increased to 500,000 won in preferential areas.To ensure that tax benefits translate into actual local economic growth, a clawback mechanism will be established. If companies that relocate or settle in a region fail to invest in local R&D, employment, or cooperative funds during the exemption period, and the amount spent falls below 30% of the exempted tax amount, the difference will be reclaimed.Tax reductions for local startups will also be expanded. The income tax and corporate tax reduction rates for general startup small businesses will be differentiated as follows: 25% for the capital region excluding overcrowded areas, 50% for metropolitan cities outside the capital, 60% for other non-metropolitan areas, and 70% for preferential areas. Young startup businesses in non-metropolitan areas will receive a 100% exemption. The reduction rates for jump-up small businesses and young innovative small businesses will also vary by region.Additionally, tax credits for hometown love donations will be differentiated by region. Donations exceeding 100,000 won but less than 200,000 won will receive a 40% credit in metropolitan cities outside the capital and a 50% credit in other non-metropolitan and preferential areas. For donations exceeding 200,000 won but less than 20 million won, the credit rate will be increased to 25% in preferential areas.* This article has been translated by AI. 2026-08-03 18:04:20
  • New Tax Credit for Domestic Production of Semiconductors and Key Technologies
    New Tax Credit for Domestic Production of Semiconductors and Key Technologies The South Korean government will introduce a new 'domestic production tax credit' system to support the production of semiconductors, secondary batteries, and AI robot components, which are essential for economic security and supply chain stability. The plan aims to encourage domestic production and regional investment by offering higher tax credits in provinces compared to the capital region.On August 3, the Ministry of Economy and Finance announced the details of the '2026 Tax Reform Plan' during a meeting of the Tax Development Advisory Committee.Starting next year, the domestic production tax credit will provide income and corporate tax deductions for items with weak domestic production bases, supporting green transition and economic security. The tax reduction will be calculated by multiplying the quantity produced and sold domestically by a standard deduction amount for each item.The eligible sectors include six key areas: solar power, wind power, secondary batteries, semiconductors, core materials, and AI robot components. The government selected these sectors based on their importance for green transition and economic security, market prospects, technological advancement, and the vulnerability of domestic production bases and production costs.The specific items eligible for tax credits and their standard deduction amounts will be finalized during the amendment of the enforcement decree. In the solar sector, items such as solar cells and high-performance modules are expected to be included, while in wind power, nacelles and blades will be supported. For secondary batteries, high-performance cathode materials that determine the competitiveness of finished products are likely to be eligible.Notably, electric vehicle finished products will not be included in the support program. Deputy Prime Minister and Minister of Economy and Finance Koo Yun-cheol explained, "We defined the tax credit targets by specific items, focusing on the core components like secondary batteries rather than the electric vehicles themselves, to ensure that electric vehicles remain competitive." To qualify for the tax credit, domestic residents or domestic corporations must perform core processes within the country, and the domestic expenditure among eligible production costs must exceed a certain percentage. The produced items must also be sold domestically in the production year or the following year. Detailed requirements will be specified in the enforcement decree.The tax benefits increase with production in non-capital regions. The standard deduction amount will be multiplied by 1.0 for the capital region, 1.1 for metropolitan cities outside the capital, and 1.3 for other non-capital areas. In regions with population decline, a maximum multiplier of 1.5 will be applied, increasing the deduction amount by 50% compared to the capital region.This system will be in effect from January 1, 2026, until December 31, 2036. To help companies adjust to the end of support, the deduction amounts will be gradually reduced in the last three years: 75% in 2034, 50% in 2035, and 25% in 2036.Items produced using facilities that received integrated investment tax credits and those produced in the capital region's congestion control areas will generally not be eligible for the domestic production tax credit. However, companies that received integrated investment tax credits before the law's enactment will have the option to cancel their existing credits and choose the domestic production tax credit through an exception procedure.* This article has been translated by AI. 2026-08-03 18:04:20
  • 2026 Tax Reform Plan: Inheritance Tax Rate Relief for Large Corporations Again Falls Short
    2026 Tax Reform Plan: Inheritance Tax Rate Relief for Large Corporations Again Falls Short The government’s 2026 tax reform plan has drawn sighs of disappointment from the business community. With large corporations remaining exempt from the family business inheritance deduction, the implementation of a law aimed at preventing stock price suppression is expected to create a double burden for these companies.On August 3, the Ministry of Economy and Finance announced plans to expand the scope of the family business inheritance deduction. According to the proposal, a 'family business' will be defined as a company possessing specialized technology and management know-how, with the deduction now applicable to 727 industries.The deduction limit will be increased from the current maximum of 600 billion won (approximately $500 million) to a baseline of 1 trillion won (approximately $830 million), calculated as 'years of management x 20 billion won.' Benefits will also be provided for transferring business to a third party, including a 10% reduction in capital gains tax, income tax, and corporate tax.The push for this policy is driven by South Korea's high inheritance tax rate, which can reach up to 60%. Critics argue that the excessive inheritance tax prevents the emergence of long-standing companies, often seen in Europe and Japan, as the baby boomer generation of business leaders retires.For instance, Hanssem, the country's leading furniture company, had to sell its management rights to a private equity fund in 2021 instead of passing the business to heirs due to the burden of high inheritance taxes.However, the revised family business inheritance deduction will only apply to companies with sales under 500 billion won, leaving large corporations without any benefits. As the government ignores the business community's desire for expanded inheritance tax relief, large and mid-sized companies facing succession are seen taking a passive approach to boosting stock prices to reduce inheritance and gift taxes.In response, the government and ruling party are preparing legislation to penalize companies that are passive in boosting stock prices, known as the 'PBR 0.8 law' (amendment to the Inheritance and Gift Tax Act). This legislation will be reflected in the current tax reform plan, increasing pressure on listed large and mid-sized companies.The government plans to designate companies that are passive in boosting stock prices as 'stock price suppression companies' through the National Tax Service's evaluation committee. Inheritance and gift taxes will be assessed based on 80% of the company's net asset value instead of the closing price for two months before and after the inheritance or gift date.Initially, the ruling party's proposal aimed to classify all companies with a PBR (price-to-book ratio) below 0.8 as stock price suppression companies. However, the government has decided to consider industries that have struggled to avoid low PBRs due to market conditions, designating the bottom 25% (KOSPI) and bottom 10% (KOSDAQ) of PBRs over the past six years as stock price suppression companies.As a result, the current reform plan is likely to face criticism from the business and academic communities for potentially causing unintended harm to certain companies due to its relative evaluation approach.The government is also introducing a 'domestic production tax credit' to support potential growth and secure future growth engines. This initiative will provide corporate and income tax benefits for companies directly producing and selling in six key industries: solar power, wind power, semiconductors, secondary batteries, core materials, and AI robot components. The government has expanded the scope of tax credits from new investments to include direct production and sales.However, doubts remain about the effectiveness of this measure. Certain businesses benefiting from the integrated investment tax credit and products produced in the capital region are excluded from eligibility. Major companies like Samsung Electronics, SK Hynix, and LG Electronics, which already receive tax credits of 10-20% through investments in national strategic technologies, may be left out of these new benefits, raising concerns about the reform's effectiveness.Song Heon-jae, a professor at the University of Seoul's Department of Economics, stated, "While preventing double support is a fundamental principle of taxation, this could result in key companies in the domestic advanced industry ecosystem being pushed out of the policy's benefits. To strengthen the domestic production base, supplementary measures to enhance the effectiveness of the system are necessary."The government has also proposed tax support measures to assist the restructuring of the petrochemical industry, which is facing a structural recession. For petrochemical companies that complete business restructuring, the government plans to reduce investment, dividends, and cooperative promotion taxes by 50% for two years after the restructuring. Additionally, the period for deferring corporate tax on capital gains from asset sales for investment or debt repayment will be extended. This aims to reduce the tax burden on companies and encourage voluntary restructuring.While companies view the tax support positively, they express disappointment regarding the scale of the support. A petrochemical industry representative remarked, "The support period is limited to two years after the restructuring, and the reduction rate is only 50%, so the tangible effects may not be significant."* This article has been translated by AI. 2026-08-03 18:04:20
  • Government Proposes Tax Reforms to Prevent Stock Price Manipulation
    Government Proposes Tax Reforms to Prevent Stock Price Manipulation The government is strengthening the evaluation method for listed stocks to prevent artificial "stock price manipulation" aimed at reducing inheritance and gift taxes. If a company's price-to-book ratio (PBR) has remained in the bottom tier of its industry for the past six years or if its stock price drops by more than 30% following negative actions affecting its corporate value, the evaluation period will be extended to reassess the taxable amount.On August 3, the Ministry of Economy and Finance announced the "2026 Tax Reform Plan" during a meeting of the Tax Development Advisory Committee held at the Bank Hall in Seoul.Currently, the value of listed stocks for inheritance and gift tax purposes is calculated based on the average closing price on the stock exchange for two months before and after the evaluation date. This structure allows for a reduction in the taxable amount and tax burden if stock prices are lowered prior to inheritance or gifting.The reform plan estimates stock price manipulation if a company meets one of two criteria: it has a PBR in the bottom 25% of its industry on the KOSPI or in the bottom 10% on the KOSDAQ over the past six years. This reflects the standards of the low PBR company disclosure system being promoted by the Financial Services Commission and the exchange.For companies that experience a rapid decline in stock prices over a short period, separate criteria will apply. If a company has engaged in actions such as dual listings or issuing convertible bonds that could negatively impact its corporate value within the past year, and if the market value at the time of inheritance or gifting is more than 30% lower than the market value over the past three years, it will be included in the reassessment.However, meeting these criteria does not immediately raise the taxable amount. The National Tax Service's evaluation committee will review the company's situation and the reasons for the stock price decline to determine whether manipulation occurred. If taxpayers can prove that the stock price management was not artificial, the current evaluation method will apply.Long-term low PBR companies will be reassessed by comparing the highest average stock price over periods ranging from six months to six and a half years with the current evaluation amount plus 30%. This structure ensures that the taxable amount is at least 30% higher than the current level.For companies that see a sharp decline in stock prices after dual listings or issuing convertible bonds, the highest average stock price over the last six months, one year, two years, and three years will be applied. This aims to reduce the impact of temporary stock price drops at the time of inheritance or gifting on the taxable amount.The tax system related to treasury stock will be unified as capital transactions. This follows the amendment of the Commercial Act in March, which classified treasury stock as capital.Under the current tax law, corporate tax is imposed on capital gains from the disposal of treasury stock. After the reform, these transactions will be classified as capital transactions and excluded from corporate tax. Instead, when a corporation acquires treasury stock, it will apply deemed dividend taxation to shareholders regardless of the purpose of acquisition, such as cancellation or disposal.The reward system for reporting tax evasion and hidden assets of delinquent taxpayers has also been revised. The legal payment limits for tax evasion reporting rewards, set at 4 billion won for national taxes and 3 billion won for hidden asset reporting, will be abolished, and rewards will be based on the amount of tax collected.The reward rate will increase from 20% to 30% for tax collections between 50 million won and 500 million won. For amounts between 500 million won and 2 billion won, the rate will rise from 15% to 20%, and for amounts exceeding 2 billion won, it will remain at 10%. Currently, the reward rate for amounts exceeding 3 billion won is 5%.The threshold for starting reward payments will also be lowered, with national taxes reduced from 50 million won to 30 million won and customs duties from 20 million won to 10 million won. The government aims to encourage reporting of high-value tax evasion and hidden assets by eliminating or lowering legal limits and thresholds.The government plans to announce these amendments by August 20, followed by a cabinet meeting, and submit them to the National Assembly on September 3.* This article has been translated by AI. 2026-08-03 18:04:10
  • 2026 Tax Reform Plan: Domestic Investment Income Tax Exemptions and Youth ISA Deductions
    2026 Tax Reform Plan: Domestic Investment Income Tax Exemptions and Youth ISA Deductions The South Korean government is introducing a new 'productive finance individual comprehensive asset management account (ISA)' that will exempt all interest and dividend income from investments in domestic stocks and stock funds from taxation. Young investors will benefit from a 10% income deduction on their contributions in addition to the tax exemption.The Ministry of Finance announced these details on August 3 during a meeting of the Tax Development Advisory Committee, unveiling the '2026 Tax Reform Plan.'The productive finance ISA will be available to residents aged 19 and older, including workers aged 15 and above. All interest and dividend income generated from the account will be fully tax-exempt, regardless of the amount.Currently, the general ISA allows for tax exemptions on interest and dividend income up to 2 million won for standard accounts and 4 million won for low-income accounts. Income exceeding these limits is subject to a separate tax rate of 9%. The productive finance ISA offers greater benefits by not imposing a separate tax exemption limit.Young investors under 34 with a total salary of 75 million won or less can opt for the youth productive finance ISA. In addition to full tax exemption on interest and dividend income, they can receive a 10% income deduction on their contributions. If they reach the annual contribution limit of 20 million won, they can deduct up to 2 million won from their taxable income.Eligible investments include domestic stocks, domestic stock funds, the National Growth Fund, and Business Development Companies (BDCs). The scope is limited to domestic investment products to ensure funds flow into domestic companies and capital markets.Unlike the general ISA, which allows investment in domestic-listed overseas stock exchange-traded funds (ETFs), the productive finance ISA does not permit such investments. Funds that invest in deposits, savings, or overseas assets are also excluded.The annual contribution limit is set at 20 million won, with a total limit of 200 million won. Unused annual contribution limits cannot be carried over to the following year. The mandatory subscription period is three years, which can be extended in three-year increments for a maximum of ten years.Individuals who have been subject to comprehensive taxation on financial income in any of the last three tax periods are ineligible to participate. This measure aims to prevent high-net-worth individuals from using tax-exempt accounts as a tax avoidance tool.In addition to the productive finance ISA, the government will introduce tax benefits for investments in BDCs. Dividend income from BDCs, which invest in venture and innovative companies, will be subject to a separate tax rate of 9% on contributions up to 100 million won. This provision will also not apply to those subject to comprehensive taxation on financial income.The deadline for joining the productive finance ISA and the special tax treatment for BDC dividend income is December 31, 2029. The government plans to submit a legislative proposal for the amendment of the Tax Special Cases Restriction Act, which includes these details, to the National Assembly on September 3 after going through public notice and a Cabinet meeting.* This article has been translated by AI. 2026-08-03 18:04:10
  • 2026 Tax Reform Plan Raises Family Business Inheritance Deduction to 1 Billion Won
    2026 Tax Reform Plan Raises Family Business Inheritance Deduction to 1 Billion Won The government will increase the family business inheritance deduction limit from the current maximum of 600 billion won to 1 billion won. The management period requirement for the deceased will be extended from 10 years to 30 years, and the post-inheritance management period will also double. This aims to focus benefits on businesses that effectively pass on accumulated technology and management know-how.The Ministry of Economy and Finance announced these details on August 3 during a meeting of the Tax Development Advisory Committee.Under the new reform plan, the government has redefined 'family business' as a company possessing specialized technology or management know-how. Companies holding patents, industrial technology, skilled techniques, trade secrets, and similar technologies and know-how will be eligible. However, businesses primarily generating income from real estate, such as franchises and rental income, will be excluded.Only 727 out of the total 1,205 sectors classified under the Korean Standard Industrial Classification will be eligible for the family business inheritance deduction. Major exclusions include supermarkets, bus and taxi transportation, parking lots, hospitals, and pharmacies. Companies designated as century-old small businesses or prestigious long-standing enterprises will be considered to meet the sector requirements.However, being in an eligible sector does not automatically grant the deduction. A public-private review committee will assess whether the company possesses specialized technology and management know-how, as well as the feasibility of succession through inheritance, before granting approval for the deduction. Changes in business sectors will generally be restricted, but exceptions may be made if deemed necessary by the committee.The management period requirement for the deceased will be strengthened from the current minimum of 10 years to at least 30 years. The post-inheritance management period that heirs must maintain for business assets, shares, and employment will be extended from 5 years to 10 years.If the deceased managed the business for over 20 years but passed away before reaching 30 years, the deduction application will still be permitted. However, the heir's post-inheritance management period will be extended by the amount of time needed to reach 30 years. For instance, if the deceased managed the business for 20 years, the heir will need to maintain the requirements for a total of 20 years, which includes the standard 10-year management period plus an additional 10 years.The deduction limit will be calculated by multiplying the management years of the deceased by 2 billion won. For 30 years of management, the deduction will be 600 billion won; for 40 years, it will be 800 billion won; and for over 50 years, the maximum deduction will be 1 billion won. The current system allows deductions of 300 billion won, 400 billion won, and 600 billion won for management periods of 10, 20, and 30 years, respectively.The scope of deductions for business-use land will be reduced. Currently, land is recognized at 3 to 7 times the floor area of buildings, but this will be limited to 2 times in the metropolitan area and 3 times in other regions. The deduction limit per square meter of land will also be capped at 10 million won.If the main business sector is eligible for deductions, the previous method of allowing deductions for all business assets, even if the secondary sector is excluded, will change. After the reform, deductions will be allocated based on the revenue generated from eligible sectors, allowing only that portion of business assets to be deducted.New tax incentives will also be introduced for selling to third parties if no relatives inherit the family business. Sellers who meet certain criteria will receive a 20% reduction in capital gains tax when transferring shares or business assets. The reduction limit will be calculated by multiplying the management years by 50 million won per year.Sellers must be the largest shareholders aged 60 or older who have managed the business for over 20 years and meet the criteria for small and medium-sized enterprises with annual sales below 500 billion won.Buyers will receive a 10% reduction in income tax or corporate tax for five years after acquisition, with an annual cap of 500 million won. Benefits will be available to those who have managed the same type of business for over 10 years or have worked for the acquired company for over 5 years. After the acquisition, business assets, shares, employment, and operations must be maintained for a specified period.Jo Man-hee, head of the Tax Policy Division at the Ministry of Economy and Finance, stated, "Since there are not a few cases where relatives do not wish to inherit the family business, it is necessary to provide tax benefits to both sellers and buyers even when the business is transferred to a third party."* This article has been translated by AI. 2026-08-03 18:04:10