South Korean tax reform addresses excessive company cash reserves, financial derivatives, thin cap rules

South Korea’s parliament has passed a tax reform package which includes a new 10 percent tax on the excess cash reserves of large corporations, a new tax on capital gains from derivatives transactions, more stringent thin cap rules, and reporting requirements for cross-border related party dealings, writes EY in a December 29 tax alert.

The tax package, passed by Korea’s National Assembly December 2, also extends for an additional 2 years the 18.7% flat income tax rate for foreign expatriate workers, EY said in a separate report.

The new tax laws were supplemented with additional guidance from Korea’s Ministry of Strategy and Finance (MOSF). The guidance, released December 26, states that a 10% tax rate will be applied to capital gains from KOSPI200 futures and options traded in domestic markets and to other derivatives traded in overseas markets. The capital gains tax will not take effect until January 1, 2016, the guidance states.

The MOSF guidance also addresses the method of calculating when a business does not spend enough earnings in a fiscal year on investment, employee raises, and dividend payments, and is thus subject to the 10 percent tax on excess cash reserves. It also provides that the new tax will be enforced from January 1, 2015.

• South Korea Ministry of Strategy and Finance release

• EY – “Korea enacts 2015 tax reform proposals”

• EY – “Korean National Assembly approves changes to the flat tax rate regime for foreign employees”

Related MNE Tax articles:

• South Korea tax reform package includes tax on corporate cash reserves