The South Korean government released a tax reform plan on July 21. According to it, the maximum corporate tax rate will be lowered from 25% to 22% and the number of corporate tax rates will be reduced from four to two and three.
The three different rates will be applied to enterprises with turnover of less than 300 billion won and two will be applied to more than 300 billion won in turnover. Currently, 35 of the 38 OECD member states use one or two rates.
Specifically, the rates for non-large enterprises will become 10% up to 500 million won of tax base, 20% up to 20 billion won, and 22% for more than 20 billion won. Currently, the 10% rate is applied up to 200 million won of tax base. This change should lead to a reduction in the tax burden. Large corporation tax rates will be simplified to 20% for up to 20 billion won and 22% for more than 20 billion won.
Also, under the plan, a company does not have to pay corporate tax in South Korea provided that it has already paid overseas tax by transferring its foreign profits to South Korea. The opposition Democratic Party of Korea is against the plan and the revision of the tax law itself should not be easy. “The corporate tax cut plan benefits a handful of conglomerates and will exacerbate domestic tax conditions,” he said.