Revisions to Korean Tax Laws enacted on December 31, 2011

Corporate Income Tax Law (“CITL”)

1. Creation of a middle corporate income tax bracket
   
   Under the previous CITL, the applicable corporate income tax rate on the tax base of KRW 200 million or less is 11% (including 10% resident surtax; below includes resident surtax) from the fiscal year commencing January 1, 2012 and thereafter, while 22% on the tax base exceeding KRW 200 million.
   
   However, under the revised CITL, a top tax rate of 24.2% will be applied to large corporations reporting a tax base exceeding KRW 20 billion and a middle income tax bracket will be introduced for those corporations with a tax base of KRW 200 million (exclusive) to KRW 20 billion (inclusive). The rate of tax applicable to corporations falling within this middle income tax bracket will be 22%.
   
   

   Corporate income tax base (in Korean Won)	Applicable tax rate (including resident surtax)
   	Old	New
   200 million or less	11%	11%
   200 million - 20 billion	22%	22%
   Over 20 billion	22%	24.2%

   
   This new provision is applicable from the fiscal year commencing on or after January 1, 2012.
   
   
2. New documentation requirements for claiming reduced treaty rate
   
   New provision of CITL is inserted such that foreign investors who apply for reduced rates provided under a tax treaty will be subject to new documentation requirements, which will vary depending on their legal status.
   
   
   • Foreign investors who are not investing through an “Offshore Investment Vehicle (“OIV”)”, e.g. foreign corporations, will be required to submit an “Application for Reduced Tax Rate” to the tax withholding agent.
   • OIVs, on the other hand, will be required to collect “Applications for Reduced Tax Rate” from their underlying investors (the beneficial owners) and to submit a list of these investors, along with a “Report of Offshore Investment Vehicle” (“OIV Report”) to the tax withholding agent.

   Failure to comply with the documentation requirements will result in application of the 22% statutory withholding tax rate on all Korean source income. However, a foreign investor (i.e., beneficial owner) may file a refund claim by submitting proper documentation to a district tax office within three years from the last day of the month in which tax was withheld. The district tax office should inform the applicant of its decision within 6 months from the request for refund of withholding tax is lodged to the district tax office.
   This new provision would be applicable from payment made on or after July 1, 2012.
   

3. Improvement of taxation for capital transactions
   
   Legal reserves (profit reserves + capital surplus reserves) can be used for dividend payment pursuant to revised Commercial Code. Under the revised CITL, dividend payment made from capital surplus reserves shall be regarded as a refund of capital, which is not taxable in Korea.
   
   This revised rule would apply to any such dividend received from the reduction of capital surplus reserve made on or after April 15, 2012 (the enforcement date of the revised Commercial Code).
   
   
4. Strengthened obligation for submitting payment statements
   
   The old CITL stipulates that interest or dividend income made to a corporation subject to tax withholding only should be included in payment statement. According to revised CITL, however, payment statement should be prepared to include all interest or dividend income payments made to a corporation.
   
   This revised provision would be applicable to interest or dividend payment made on or after January 1, 2012.
   

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