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Tax Revision Bill, 2012

  • 01 Creating Jobs and Growth Engines for the Future
  • 02 Boosting Domestic Demand and Supporting the Middle and Low Income Classes
  • 03 Improving Fiscal Health
  • 04 Improving Taxation System

I. Creating Jobs and Growth Engines for the Future

Creating jobs

To encourage job creation in the private sector, the 2012 bill increases employment-related tax deductions and decreases other basic tax deductions. The tax deduction for facility investment will be maintained. However, for every job lost, the tax deduction will be reduced by 10 million won.

Suggested tax deduction
Details
Large enterprises Small-and medium-sized enterprises (SMEs)
In the Seoul metropolitan area Outside the Seoul metropolitan area
Basic deduction1 3% change 2% 4% change 3% 4% change 4%
Additional deduction2 2% change 3% 2% change 3% 3% change 3%
Total 5% change 5% 6% change 6% 7% change 7%
  1. 1. The deduction reduces as employment falls*
  2. 2. The deduction increases as employment rises*

*the number of jobs x 10 or 20 million won per job (20 million won for occupational high school graduates, 15 million won for young adults, 10 million won for others)

The 2012 tax revision bill gives tax deductions to the service sector for job creating investments, as agencies providing human resources services and natural gas retailers will be eligible for the tax incentives.

The current tax incentives given to domestic companies returning to Korea after more than two years of overseas business operation, a corporate and income tax exemption for five years and a 50 percent deduction for an additional two years thereafter, will be extended until the end of 2015. There will be tariff exemptions for facilities imported by returning SMEs. If SMEs, with no production facilities at home, invest in Korea instead of moving facilities back to Korea, they will be regarded as returning companies.

Service industries, which generate more jobs, in particular the IT and social welfare service related industries, will be given more tax incentives. Foreign investment of more than US$30 million in IT related industries will be exempt from corporate taxes for five years and have an additional tax reduction of 50 percent for the next two years.
All social welfare services for seniors, the disabled and the socially vulnerable will be eligible for the same special tax incentives as SMEs.

Social enterprises, which provide jobs or social welfare services to vulnerable groups, and businesses employing the disabled of 10 or more persons, more than 30 percent of their workforce, will be given a tax reduction of 50 percent applicable until the end of 2014.

SMEs employing job sharing programs will be given special SME incentives for an extended period of three years until the end of 2015, which gives the SMEs and their employees an income tax deduction of 50 percent of the reduced income resulting from the job sharing program.
SMEs accepting specialized vocational high school graduates returning from their mandatory military service will be given a tax deduction of 10 percent of the graduates’ salaries for two years until the end of 2015. There will be 10 percent tax deduction for corporate investment in research and training facilities in specialized vocational high schools.

Taking into account their daily hardships, the income tax exemption ceiling will be raised from 2 million won per month to 3 million for those working in overseas vessels or deep sea fishing vessels. The inheritance tax exemption ceiling for family businesses will also be raised from 150 billion won to 200 billion won of sales revenue to encourage investment and employment.

Nurturing Growth Engines

Facilities investment in order to reduce green house gas emissions will also receive a tax deduction for 10 percent of their investment, as is the case for other investments whose purpose is to conserve the environment and save energy. The tax incentive for energy saving facility investment will be applicable for the purchase of devices that store electricity and automatically save power.
Capital gains taxes on 'green investment' such as 'green savings, funds and bonds' will be exempt until the end of 2014. Hybrid cars will be eligible for an exemption on the individual consumption tax of up to 1.3 million won for three more years until the end of 2015, while buses using natural gas will be exempt from the value added tax for the same period.
The gasoline tax refund for cars with engines smaller than 1,000 cubic centimeters will be extended by two years until the end of 2014.

R&D related tax incentives will be provided for three more years until the end of 2015, while a new R&D tax incentive for leading enterprises will be adopted with the tax deduction of 8 percent of the total investment.

Tax deduction for R&D investment
Details
SMEs for the first four years SMEs for the next three years SMEs for the next two years Leading enterprises Large enterprises
25% 15% 10% 8% 3-6%

The value added tax on private university dormitory construction will be exempt until the end of 2015, like national and public university dormitory construction, only when the construction is done with the BTL (Build-Transfer-Lease) method*.

*One of the methods to attract private investment in constructions, in which developers own rights to manage the construction while universities own the construction. The construction is then leased to the universities, and the universities pay the developers for the use of the building.

Other tax deductions and deduction extensions supported are the tax deduction for investment in employee welfare, investment in new growth engines and source technology development, R&D investment in new medicines and facility investment to improve productivity. There will also be tariff exemptions for medicinal imports for clinical testing and tax deductions for the expense of using professional logistics companies until the end of 2015, which is designed to help grow the logistics industry.

Angel investors will receive increased income tax deductions for their investments, from 20 percent of total investment to 30 percent. Tax incentives for new venture businesses will be extended for two years until the end of 2014, while newly established SMEs will be given a 50 percent tax reduction for five years, an increase from four years, until the end of 2015. The special tax exemption given to those who restart businesses with the help of government funding will be applied to larger businesses, from those with annual revenue of 600 million won or less to 1 billion won or less.

There will be an increased tax deduction, from 3 percent to 7 percent, for facility investment by SMEs which is aimed at preventing technology theft, while all facility investment by SMEs will receive an extended tax deduction for three more years until the end of 2015. The income transfer tax on fixed business assets incurred by a merger between SMEs will be transferred to the acquiring company, and the same will apply when private businesses convert into corporations. The payment of the income transfer tax will be made when the acquiring corporations sell those assets.


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