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Korea’s 2025 Tax Reform: Analyzing Regulatory and Compliance Shifts for Foreign Investors

2025.11.17

<span style="font-size:18px;"><span style="color:#c0392b;"><strong>Introduction</strong></span></span>
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<span style="font-size:18px;">On July 31, 2025, the Ministry of Economy and Finance (MOEF) released the 2025 Tax Revision Bill (the “Bill”), marking one of the most comprehensive revisions to Korea’s fiscal framework in recent years.  The Bill’s stated objectives are to provide efficient tax support for genuine economic growth and simultaneously to expand the revenue base through economic growth and rationalization of the tax system.<sup><span style="color:#c0392b;">1)</span></sup>  The Bill establishes three strategic pillars: (1) promotion of future-strategy industries to drive technological innovation; (2) an inclusive tax policy designed to stabilize livelihoods and foster shared growth; and (3) strengthening the revenue base and rationalizing the tax system.<sup><span style="color:#c0392b;">2)</span></sup><br />
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While household relief measures fall under the second pillar, the first and third bear the greatest relevance for foreign stakeholders.  The Bill redefines incentive framework for strategic industries, seeks to rebalance the corporate tax structure, and reinforce international reporting and compliance standards, collectively reshaping the regulatory landscape for foreign investors and multinational enterprises operating in Korea.</span></div>
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<span style="font-size:18px;"><span style="color:#c0392b;"><strong>1. Promotion of Future-Strategy Industries</strong></span></span><br />
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<span style="font-size:18px;"><strong>A) Expansion of Tax Incentives for National Strategic Technologies</strong></span>

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<span style="font-size:18px;">The Bill expands tax benefits for National Strategic Technologies,<sup><span style="color:#c0392b;">3)</span></sup> including sectors such as AI, semiconductors, secondary batteries, future mobility, and defense, which are expected to serve as major drivers of Korea’s economic growth in the coming years.  These areas already receive enhanced deductions of up to 50% for small and medium-sized enterprises (SMEs) and 40% for medium and large enterprises, compared with general R&D activities.<sup><span style="color:#c0392b;">4)</span></sup>  The Bill now includes five additional AI categories eligible for such incentives (Generative AI, Agentic AI, Sophistication of learning and reasoning, Human-centered AI, Low-power/high efficiency AI computing), along with two future mobility categories (AI-based autonomous navigation, Passenger recognition/interface technologies).<sup><span style="color:#c0392b;">5)</span></sup><br />
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By focusing tax benefits on R&D and facility investments tied to specific technologies rather than on general capital inflows, the Bill promotes active participation in Korea’s innovation process.  This approach encourages foreign-invested companies to establish local research operations, collaborate with domestic institutions, and contribute to technological advancement within Korea, rather than merely providing funding or portfolio investment. </span></div>
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<span style="font-size:18px;"><strong>B) Support for Commercialization Facilities and Domestic Reshoring</strong></span>

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<span style="font-size:18px;">Commercialization facilities tied to National Strategic Technologies continue to enjoy tax exemption rates of 25% for SMEs and 15% for medium and large enterprises.  The Bill now extends these benefits to three additional facility types, including AI data centers, testing and production facilities for AI-based autonomous navigation, and commercialization sites for driving intelligence information systems, aligning tax incentives with Korea’s push for AI and smart mobility infrastructure.<sup><span style="color:#c0392b;">6)</span></sup>  In parallel, reshoring incentives are reinforced: companies may now claim income, corporate, and customs tax reductions even if domestic expansion precedes foreign downsizing, provided the downsizing is completed within four years.  For human capital, the 50% income tax reduction for returning Ph.D.-level researchers in AI, science, engineering and medicine is also extended to December 31, 2028, reinforcing Korea’s integrated strategy to attract both industrial investment and human-capital repatriation.<sup><span style="color:#c0392b;">7)</span></sup></span>  </div>
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<span style="font-size:18px;"><strong>C) Reform of Employment Tax Credits to Encourage Job Stability</strong></span>

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<span style="font-size:18px;">The Integrated Employment Tax Credit<sup><span style="color:#c0392b;">8)</span></sup> shifts from a penalty-based to an incentive-based framework.  Rather than losing credits when headcount falls, corporations maintaining or increasing employment over two to three years receive annual credits ranging from KRW 4 million to KRW 15.5 million, depending on company size and location.<sup><span style="color:#c0392b;">9)</span></sup>  The reform links fiscal benefits to sustained job retention, offering foreign subsidiaries a more predictable basis for labor-cost management and demonstrating alignment with Korea’s ESG and employment-sustainability priorities.  </span></div>
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<span style="font-size:18px;"><span style="color:#c0392b;"><strong>2. Activation of Capital Markets and Venture Investment</strong></span></span><br />
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<span style="font-size:18px;"><strong>A) Encouraging Dividend Culture and Investor Returns</strong></span>

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<span style="font-size:18px;">A core policy aim of the Bill is to strengthen shareholder returns and foster a mature dividend culture within Korea’s capital markets.  To this end, the Bill introduces separate taxation on dividend income earned by residents from high-dividend-yield listed companies, effectively removing such income from the general aggregate income tax range (14%–45%).  This treatment applies only when specific eligibility conditions are met, such as maintaining or increasing annual cash dividends and meeting prescribed payout ratios, with tax rates ranging from 14% to 35%, depending on the dividend amount.<sup><span style="color:#c0392b;">10)</span></sup>  By rewarding sustained dividend growth, the reform encourages corporations to prioritize shareholder returns over retained earnings, signaling a shift toward return-oriented corporate finance and providing foreign investors with clearer after-tax predictability. </span></div>
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<span style="font-size:18px;"><strong>B) Tax Exemption for BIS Investment Income</strong></span>

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<span style="font-size:18px;">One of the Bill’s more symbolic yet strategically significant amendments grants a tax exemption to the Bank for International Settlements (BIS) for income derived from Korean-won-denominated assets.<sup><span style="color:#c0392b;">11)</span></sup>  This measure brings Korea in line with other jurisdictions such as the United States and Japan that treat BIS as a public international institution rather than a taxable entity, thereby ensuring consistency under global financial norms.  The Ministry of Economy and Finance (MOEF) expects that BIS’s expanded investment in Korean-won assets will lead to (i) increased business opportunities for domestic financial institutions, (ii) diversification of participants in the foreign exchange market, and (iii) improvement in the overall market.<sup><span style="color:#c0392b;">12)</span></sup>  This implies that Korea’s financial markets are likely to benefit from broader institutional participation, deeper liquidity, and stronger systemic stability, which in turn enhance investor confidence and international credibility.</span></div>
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<span style="font-size:18px;"><strong>C) Strengthening Venture Capital and SPV Investment Incentives</strong></span>

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<span style="font-size:18px;">One of the more technically significant reforms under the Bill introduces explicit tax support for venture investments made through special purpose companies (SPCs) wholly owned by venture capital partnerships.  The measure ensures that tax exemptions and credits previously limited to direct venture investments now extend to SPC-structured participation, removing double-taxation risks and reducing transactional inefficiencies.<sup><span style="color:#c0392b;">13)</span></sup>  This mechanism enables multi-fund co-investment and risk-segmented deal structuring, both essential for scaling early-stage innovation financing.  In effect, the reform harmonizes Korea’s tax treatment of venture funds with international practice and enhances transparency and predictability for foreign venture capital and private equity investors seeking long-term participation in the Korean innovation market.</span></div>

<table cellpadding="8px" style="width:100%; text-align:center; border:1px solid #bbb; border-collapse:collapse;" width="100%">
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			<td style="border: 1px solid rgb(187, 187, 187); background-color: rgb(242, 242, 242); border-top: 2px solid #cc0000; padding: 8px; vertical-align: top;" width="33%"><span style="font-size:16px;"><strong>Key Provisions</strong></span></td>
			<td style="border: 1px solid rgb(187, 187, 187); background-color: rgb(242, 242, 242); border-top: 2px solid #cc0000; padding: 8px; vertical-align: top;" width="33%"><span style="font-size:16px;"><strong>Purpose</strong></span></td>
			<td style="border: 1px solid rgb(187, 187, 187); background-color: rgb(242, 242, 242); border-top: 2px solid #cc0000; padding: 8px; vertical-align: top;" width="33%"><span style="font-size:16px;"><strong>Expected Market Effect</strong></span></td>
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			<td style="border: 1px solid rgb(187, 187, 187); font-size: 15px; text-align: left; line-height: 25px; padding: 12px; vertical-align: top">
			<div style="line-height: 25px; font-size: 15px">Separate taxation for high-dividend income</div>
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			<td style="border: 1px solid rgb(187, 187, 187); font-size: 15px; text-align: left; line-height: 25px; padding: 12px; vertical-align: top">
			<div style="line-height: 25px; font-size: 15px">Promote shareholder returns and dividend culture</div>
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			<td style="border: 1px solid rgb(187, 187, 187); font-size: 15px; text-align: left; line-height: 25px; padding: 12px;">
			<div style="line-height: 25px; font-size: 15px">Improve equity yield appeal for global investors</div>
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			<td style="border: 1px solid rgb(187, 187, 187); font-size: 15px; text-align: left; line-height: 25px; padding: 12px; vertical-align: top">
			<div style="line-height: 25px; font-size: 15px">BIS investment-income exemption</div>
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			<td style="border: 1px solid rgb(187, 187, 187); font-size: 15px; text-align: left; line-height: 25px; padding: 12px; vertical-align: top">
			<div style="line-height: 25px; font-size: 15px">Signal international financial integration</div>
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			<td style="border: 1px solid rgb(187, 187, 187); font-size: 15px; text-align: left; line-height: 25px; padding: 12px; vertical-align: top">
			<div style="line-height: 25px; font-size: 15px">Reduce country risk premium</div>
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			<div style="line-height: 25px; font-size: 15px">Expanded VC/SPV incentives</div>
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			<div style="line-height: 25px; font-size: 15px">Stimulate innovative finance</div>
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			<td style="border: 1px solid rgb(187, 187, 187); font-size: 15px; text-align: left; line-height: 25px; padding: 12px;">
			<div style="line-height: 25px; font-size: 15px">Boost cross-border venture flows</div>
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<span style="font-size:18px;"><span style="color:#c0392b;"><strong>3. Strengthening the Revenue Base and Rationalizing the Tax System</strong></span></span><br />
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<span style="font-size:18px;"><strong>A) Normalization of Tax Burden and the Ability-to-Pay Principle</strong></span>

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<span style="font-size:18px;">Under the heading of “Normalization of Tax Burden,” the Bill increases corporate tax rates by 1 percentage point across all taxable income brackets, including a rise from 24% to 25% for income exceeding KRW 3 trillion, thereby reverting to the pre-2022 rate structure “to normalize the tax burden in accordance with the ability-to-pay principle and to secure a stable revenue base.”<sup><span style="color:#c0392b;">14)</span></sup>  The securities-transaction tax returns to its former level (2023, at 0.05%) following last year’s temporary reduction,<sup><span style="color:#c0392b;">15)</span></sup> and the capital gains threshold defining a major shareholder decreases from KRW 50 billion to KRW 10 billion, broadening the tax base among large equity holders.<sup><span style="color:#c0392b;">16)</span></sup> </span></div>

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			<td style="border: 1px solid rgb(187, 187, 187); background-color: rgb(242, 242, 242); border-top: 2px solid #cc0000; padding: 8px; vertical-align: top;" width="25%"><span style="font-size:16px;"><strong>Tax Item</strong></span></td>
			<td style="border: 1px solid rgb(187, 187, 187); background-color: rgb(242, 242, 242); border-top: 2px solid #cc0000; padding: 8px; vertical-align: top;" width="25%"><span style="font-size:16px;"><strong>Previous Rate</strong></span></td>
			<td style="border: 1px solid rgb(187, 187, 187); background-color: rgb(242, 242, 242); border-top: 2px solid #cc0000; padding: 8px; vertical-align: top;" width="25%"><span style="font-size:16px;"><strong>2025 Revision</strong></span></td>
			<td style="border: 1px solid rgb(187, 187, 187); background-color: rgb(242, 242, 242); border-top: 2px solid #cc0000; padding: 8px; vertical-align: top;" width="25%"><span style="font-size:16px;"><strong>Policy Rationale</strong></span></td>
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			<div style="line-height: 25px; font-size: 15px">Corporate tax (top bracket > ₩ 3 trillion)</div>
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			<div style="line-height: 25px; font-size: 15px">24 %</div>
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			<td style="border: 1px solid rgb(187, 187, 187); font-size: 16px; text-align: left; line-height: 25px; padding: 12px;  vertical-align: top">
			<div style="line-height: 25px; font-size: 15px">25 %</div>
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			<td style="border: 1px solid rgb(187, 187, 187); font-size: 16px; text-align: left; line-height: 25px; padding: 12px;  vertical-align: top">
			<div style="line-height: 25px; font-size: 15px">Normalize burden and secure fiscal stability</div>
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			<div style="line-height: 25px; font-size: 15px">Securities-transaction tax</div>
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			<td style="border: 1px solid rgb(187, 187, 187); font-size: 15px; text-align: left; line-height: 25px; padding: 12px; vertical-align: top">
			<div style="line-height: 25px; font-size: 15px">Reduced in 2023</div>
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			<td style="border: 1px solid rgb(187, 187, 187); font-size: 16px; text-align: left; line-height: 25px; padding: 12px;  vertical-align: top">
			<div style="line-height: 25px; font-size: 15px">Restored to prior rate</div>
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			<td style="border: 1px solid rgb(187, 187, 187); font-size: 16px; text-align: left; line-height: 25px; padding: 12px;  vertical-align: top">
			<div style="line-height: 25px; font-size: 15px">Enhance equity and market discipline</div>
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			<td style="border: 1px solid rgb(187, 187, 187); font-size: 15px; text-align: left; line-height: 25px; padding: 12px; vertical-align: top">
			<div style="line-height: 25px; font-size: 15px">Capital-gains threshold for major shareholders</div>
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			<td style="border: 1px solid rgb(187, 187, 187); font-size: 16px; text-align: left; line-height: 25px; padding: 12px; vertical-align: top">
			<div style="line-height: 25px; font-size: 15px">₩ 50 billion</div>
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			<td style="border: 1px solid rgb(187, 187, 187); font-size: 16px; text-align: left; line-height: 25px; padding: 12px;  vertical-align: top">
			<div style="line-height: 25px; font-size: 15px">₩ 10 billion</div>
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			<td style="border: 1px solid rgb(187, 187, 187); font-size: 16px; text-align: left; line-height: 25px; padding: 12px;  vertical-align: top">
			<div style="line-height: 25px; font-size: 15px">Broaden tax base among large holders</div>
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<span style="font-size:18px;">The aggregate impact is a moderate increase in tax costs for large corporations and wealthy investors.  For foreign businesses, this signals a shift from the earlier low-tax, growth-first approach to a model that values fiscal sustainability and social equity.  Although official corporate tax rates remain regionally competitive, the emphasis on fairness and stable revenue may inspire greater confidence among long-term institutional investors seeking predictable policy environments.<sup><span style="color:#c0392b;">17)</span></sup></span></div>
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<span style="font-size:18px;"><strong>B) Administrative and Compliance Enhancements</strong></span>

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<span style="font-size:18px;">The Bill also fortifies tax administration.  A statutory basis is established for the collection of overseas stock trading records from domestic taxpayers.  Foreign corporations’ liaison offices that fail to submit mandatory status reports will face new administrative penalties.<sup><span style="color:#c0392b;">18)</span></sup>  Further, the scope of “merger consideration” in triangular mergers is clarified to remove ambiguity in cross-border M&A transactions.<sup><span style="color:#c0392b;">19)</span></sup>  This implies that future foreign acquisitions involving Korean subsidiaries will encounter clearer valuation standards and reduced dispute risk.  Collectively, these amendments reflect a consistent policy direction: to align tax incentives and fairness with transparency and enforceability.  While foreign companies may experience heightened reporting duties, they benefit from greater procedural certainty and a more predictable, rule-based administrative environment.</span></div>
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<span style="font-size:18px;"><strong>C) Clarification of Domestic-Source Income and Customs Refund Procedures</strong></span>

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<span style="font-size:18px;">The Bill clarifies the definition of gift income within domestic-source income under Article 93 of the Corporate Tax Act, in line with the principle of legal clarity.  Specifically, when a foreign corporation acquires a domestic asset at a price more than 30% below fair market value, the difference between the transaction price and the market price is deemed taxable gift income.  This clarification strengthens Korea’s anti-tax avoidance framework by closing gaps in undervalued transfer transactions involving foreign entities.<sup><span style="color:#c0392b;">20)</span></sup></span></div>
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<span style="font-size:18px;"><span style="color:#c0392b;"><strong>Conclusion</strong></span></span>

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<span style="font-size:18px;">The Bill advances strategic sectors such as AI, semiconductors, and mobility through targeted incentives while restoring tax progressivity to reinforce fiscal stability and fairness.  For foreign investors, it represents a shift from incentive-based competition to a framework grounded in credibility, transparency, and sustainable growth.  While modest increases in compliance and taxation may occur, the overall effect is to strengthen predictability and long-term confidence in Korea’s investment climate.  Foreign entities and investors should carefully review forthcoming enforcement decrees and consult qualified Korean tax and legal professionals to ensure full compliance and optimal structuring under the revised framework.</span></div>

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<div style="margin-bottom: 8px; font-size: 16px; line-height: normal;"><span style="color:#cc0000; line-height:10px">1) </span>Ministry of Economy and Finance, <i>2025 Tax Revision Bill – Article-by-Article Format</i>, at 3 (July 31, 2025), available at <a href="https://moef.go.kr/com/synap/synapView.do;jsessionid=NrtzqyLZy8L45EbCZ0BcM3zjtrCUWgE3GVWpQI3A.node10?atchFileId=ATCH_000000000029630&fileSn=3" target="_blank"><span style="color:#2980b9;">https://moef.go.kr/com/synap/synapView.do;jsessionid=NrtzqyLZy8L45EbCZ0BcM3zjtrCUWgE3GVWpQI3A.node10?atchFileId=ATCH_000000000029630&fileSn=3</span></a></div>

<div style="margin-bottom: 8px; font-size: 16px; line-height: normal;"><span style="color:#cc0000; line-height:10px">3) </span>“National Strategic Technologies”, as defined in the Special Act on the Fostering of National Strategic Technology, refers to technologies that are “deemed to have a strategic importance in in terms of diplomacy and security, has a substantial impact on the national economy and related industries, and serves as the foundation for future innovation, such as creation of new technology and new industries.”</div>

<div style="margin-bottom: 8px; font-size: 16px; line-height: normal;"><span style="color:#cc0000; line-height:10px">4) </span>Ministry of Economy & Finance, 2025 Tax Revision Bill: Detail Summary, at 1 (July 31, 2025)</div>

<div style="margin-bottom: 8px; font-size: 16px; line-height: normal;"><span style="color:#cc0000; line-height:10px">8) </span>The Integrated Employment Tax Credit is a unified tax incentive under Korea’s <i>Special Tax Treatment Control Act</i> that consolidates previous employment-related credits.  It provides tax reductions to companies that increase the number of regular employees, encouraging stable job creation.</div>

<div style="margin-bottom: 8px; font-size: 16px; line-height: normal;"><span style="color:#cc0000; line-height:10px">9) </span>Ministry of Economy and Finance, 2025 Tax Revision Bill – Article-by-Article Format, at 8 (July 31, 2025)</div>

<div style="margin-bottom: 8px; font-size: 16px; line-height: normal;"><span style="color:#cc0000; line-height:10px">12) </span>Ministry of Economy and Finance, 2025 Tax Revision Bill: Q&A Material (real-time session, file AT CH_000000000029630, file Sn 6) at 16</div>

<div style="margin-bottom: 8px; font-size: 16px; line-height: normal;"><span style="color:#cc0000; line-height:10px">19) </span>Ministry of Economy and Finance, 2025 Tax Revision Bill: Detail Summary, at 108 (July 31, 2025)</div>

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