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Korea (Rep.)

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Tax law changes for 2010 – direct tax

On 31 December 2009 and 1 January 2010, the government promulgated changes to various tax laws. The changes take effect from 1 January 2010 unless specified otherwise.

The key changes are summarized as follows:

Corporate Income Tax Law (CITL)

-   The tax rate reduction from 22% to 20% for the income bracket of more than KRW 200 million will be postponed by 2 years, i.e. from 1 January 2012. The tax rate reduction from 11% to 10% for the income bracket of less than KRW 200 million is as originally scheduled .
-   Domestic corporations subject to a mandatory external audit under the Law for External Audit on Joint Stock Companies may request to file and pay the corporate income tax within 4 months (statutory deadline is 3 months) after the fiscal year end. However, a daily interest will be imposed during the extended period.
-   Previously, interest on bonds received by certain financial institutions was not subject to withholding tax by virtue of a prior amendment on 31 December 2007. Under the amendment, the withholding obligation will be reinstated for such interest accruing on or after 1 January 2010.

International Tax Coordination Law (ITCL)

-   Prior to the amendment, for thin capitalizian purposes, foreign currency denominated borrowings were required to be converted by using the basic exchange rate at the year end. Under the amendment, financial institutions can make a foreign exchange conversion for thin capitalization purposes using either (i) the year end exchange rate, or (ii) the average exchange rate for the borrowing period of the year. The same method must be applied for the next 5 years once a method has been selected. The amendment will be effective for taxable years in which the tax return is filed on or after 31 December 2009.
-   Under the amendment, for the purposes of the application of the rule for deemed distribution as dividends of retained earnings of a specific foreign corporation owned by a domestic corporation (CFC rules), the determinant for so-called "tax haven" jurisdictions where the specific foreign corporation has its head office or principal office is simplified into where the corporation's tax burden is 15% or less of its actually earned income amount. The amendment will be effective for taxable years beginning on or after 1 January 2010.

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