Tax exemption for interest and capital gains of nonresidents and key corporate measures for 2023

The Korean Ministry of Economy and Finance announced on 17 October 2022 that the government is granting a temporary tax exemption for interest income and capital gains derived by nonresidents (foreign corporations and individuals) from Korean government bonds and monetary stabilisation bonds. The exemption, which aims to help stabilise the foreign exchange and debt markets, applies during the period 17 October through 31 December 2022. It should be noted that, under the tax proposals for year 2023 that were published in July, such interest and capital gains would have been permanently exempt.

In addition, the following changes will be effective as from 1 January 2023:

Corporate tax rate reduction: The top corporate tax rate will drop from 25% to 22% to mitigate the tax burden on corporations and stimulate innovative growth (e.g., investment, job creation, etc.).
Participation exemption for dividends from foreign subsidiaries: A participation exemption for dividends received by Korean companies from foreign subsidiaries (other than foreign subsidiaries located in low-tax countries) will be introduced under which 95% of certain dividends will be excluded from the Korean company’s taxable income. This change aims to prevent double taxation, since under the current rules, Korean taxpayers receiving foreign dividends are required to include the dividend income in their taxable income and claim a foreign tax credit for any foreign taxes paid on the dividends, but this method does not always result in a full avoidance of double taxation, creating an additional tax burden on Korean companies.
Increased deductibility of loss carry forwards: The annual deduction limit for losses carried forward by general corporations will increase from 60% to 80% of taxable income.

Kwang Tae Oh
kwangtae.oh@bdo.kr