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On August 3, 2026, the Ministry of Economy and Finance announced the 2026 Proposed Tax Law Amendments (the Proposals). The Proposals encompass a broad range of measures including, inter alia, revision of the domestic treasury shares taxation rules, introduction of new tax credits for domestic production of strategically important products, adoption of preferential tax incentives to promote regional R&D and investment activities, revision to the preferential flat tax regime for foreign expats, a reduction in the threshold tax rate for the Korean controlled foreign company (CFC) rule to align with Pillar Two global minimum tax rules (GloBE Rules), and the introduction of the Side-by-Side Package agreed by the OECD/G20 Inclusive Framework (the Side-by-Side Package). The following is a brief summary of some of the Proposals that may affect multinational companies doing business in Korea, as well as domestic companies. * The Proposals remain subject to legislative approval, and certain provisions may be amended or withdrawn during the legislative process. Accordingly, the discussion below describes the key changes that would take effect to the extent that the relevant provisions of the Proposals are enacted substantially in their current form. For ease of reference, the discussion below may use terms such as “will” when describing the proposed changes; such usage should not be understood to indicate that the relevant changes are necessarily expected to be enacted or take effect.    

1. Reduction of the Threshold for Deemed Dividends of Controlled Foreign Companies (Article 27 of the International Tax Coordination Law)

    The effective tax rate (ETR) test under the Korean CFC regime to determine deemed dividends of a CFC in a low tax jurisdiction will be reduced from 17.5% to 15%.     Under the current regime, a Korean shareholder may be subject to deemed dividend taxation with respect to a CFC if certain requirements are met, including, among other things, the ETR test, which currently requires the CFC’s ETR in that jurisdiction to be 17.5% or lower. This reduction also aligns with the 15% global minimum tax rate under the GloBE Rules. If enacted, this Proposal would apply to fiscal years beginning on or after January 1, 2027.     [ Practical Implications ]     The lowering of the ETR threshold to trigger deemed dividend under the CFC rules should widen the range of retention and distribution strategies available for Korean multinational companies with foreign subsidiaries. However, as the ETR is based on the actual tax burden (as defined) in that jurisdiction in a given year, groups should reassess the ETRs of relevant foreign subsidiaries annually to determine whether the CFC rules would apply.  

2. Enhanced Oversight of Foreign Trusts – Expanded Whistleblower Rewards and Increased Penalties for Reporting Violations (Article 84-2 of the National Tax Basic Law and Article 65-4 of the Presidential Decree thereto; Article 91 of the International Tax Coordination Law)

    Oversight of foreign trusts will be strengthened by expanding whistleblower rewards and increasing penalties for reporting violations under the International Tax Coordination Law.     Currently, such rewards are available only for material information leading to the detection of violations of overseas financial account reporting obligations. The Proposals would expand the program to include material information leading to the detection of violations of the obligation to submit foreign trust statements.     The reward structure would also be revised. Under the Proposals, the current 5% tier for fines exceeding KRW 500 million would be eliminated, with the 10% rate applying to the entire portion exceeding KRW 200 million, thereby increasing rewards for large-scale violations.     The maximum administrative fine for failure to submit, or for falsely submitting, a foreign trust statement or related supplementary information will increase from KRW 100 million to KRW 1 billion. The existing calculation method, generally up to 10% of the unreported or under-reported foreign trust assets, would remain unchanged. To prevent duplicative penalties, any trust assets already subject to a fine for failure to report overseas financial accounts would be excluded from the foreign trust statement fine. These changes would apply to submissions made on or after January 1, 2027.     [ Practical Implications ]     The tenfold increase in the maximum fine, together with expanded whistleblower rewards, would significantly increase compliance risks relating to foreign trusts. Individuals holding or administering foreign trusts should therefore review their reporting obligations and ensure that trust structures and asset valuations are properly documented.  

3. Clarification of the Scope of Administrative Fines for Failure to Comply with International Transaction Reporting Obligations (Article 87 of the International Tax Coordination Law; Article 144 of the Presidential Decree thereto)

    The scope of administrative fines for failure to comply with international transaction reporting obligations will be clarified. Under the current regime, an administrative fine is imposed where documentation is not submitted by the applicable deadline or where false documentation is submitted; the Proposals would extend the scope to include the submission of documentation containing material omissions or errors.     [ Practical Implications ]     Currently, taxpayers may have some room to avoid administrative fines where the required documentation is submitted by the applicable deadline, even if its contents are deficient in certain respects. Under the Proposals, however, the submission of documentation containing material omissions or errors will be expressly subject to administrative fines. Accordingly, when preparing and submitting international transaction documentation, including the Statement of International Transactions, Master File, Local File, Country-by-Country Reporting (CbCR), and GloBE Information Return, taxpayers should establish procedures and controls to verify the accuracy and completeness of the information reported, rather than treating on-time submission as sufficient in itself.  

4. Deemed Dividend Taxation on the Acquisition of Treasury Shares (Article 17 of the Individual Income Tax Law, among others; Article 16 of the Corporate Income Tax Law and the Presidential Decrees thereto)

    Under current Korean tax law, gains realized by a shareholder from a share buyback or redemption by the company may be treated as either deemed dividend income or capital gains, depending on the purpose of the buyback. Generally, the amount exceeding the shareholder’s tax basis is treated as deemed dividend income if the company intended to cancel such shares immediately, but as capital gains if the company intended to continue to hold such shares as treasury shares.     However, in light of recent amendments to the Korean Commercial Law, which now generally treat all acquisition of a company’s own shares from shareholders as a capital transaction and require the repurchased shares to be canceled (rather than held as treasury shares), the Proposals would revise the tax treatment of share buybacks. To align the tax treatment with the amended Korean Commercial Law, the Proposals would provide that any amount exceeding the shareholder’s tax basis is per se treated as deemed dividend income, regardless of the purpose of the share buyback.     The Proposal would apply to share buybacks for which the purchase price is paid on or after January 1, 2027.     [ Practical Implications ]     Under the current rules, the tax treatment of a share buyback as a deemed dividend or capital gains depends on the purpose for which the treasury shares are acquired. This historically resulted in disputes over the income characterization of the acquisition. Under the Proposals, however, a share buyback would give rise to deemed dividend treatment at the shareholder level regardless of the purpose of the acquisition. Accordingly, domestic companies considering share buybacks and their shareholders should take into account that deemed dividend treatment would apply to share buybacks for which the purchase price is paid on or after January 1, 2027, irrespective of the intent of repurchase/redemption.  

5. Reform of the Income Tax Incentives for Foreign Employees – Increase in the Flat Tax Rate for Foreign Employees and Tightening of the Eligibility Requirements for Foreign Engineers (Article 18 of the Special Tax Treatment Coordination Law, among others; Article 16 of the Presidential Decree thereto, among others)

    Under the Proposals, income tax incentives for foreign employees will be reformed. First, the flat tax rate under the Special Tax Treatment Coordination Law available to foreign employees for earned income will be increased from the current 19%1 to 21%2, while the sunset date will be extended from December 31, 2026, to December 31, 2029. If enacted, this Proposal will apply to income arising on or after January 1, 2027.     In addition, the educational requirement for the foreign engineer income tax reduction, which provides a 50% reduction of Individual Income Tax for ten years, will be tightened from “a bachelor’s degree or higher in the natural sciences, engineering, or medicine” to “a doctoral degree.” The sunset date for the reduction will also be extended from December 31, 2026, to December 31, 2029. If enacted, this Proposal will apply to employment contracts entered into on or after April 1, 2027.     The scope of qualifying research institutions at which foreign engineers may be employed will also be narrowed. Universities, government-funded research institutes, and the Agency for Defense Development, among others, will continue to qualify. However, a corporate research institute or dedicated R&D department established within a company will qualify only if the company: (i) claims the research and human resources development expense tax credit for national strategic technology or new growth and original technology; (ii) holds national strategic technology under the National Strategic Technology Fostering Law; (iii) holds strategic technology under the National Advanced Strategic Industry Law; or (iv) holds national core technology under the Industrial Technology Protection Law. If enacted, this Proposal will apply to employment contracts entered into on or after April 1, 2027.     [ Practical Implications ]     The higher flat tax rate would apply from January 1, 2027, and would also apply to foreign employees under existing employment contracts. By contrast, the tightened eligibility requirements for foreign engineer income tax reduction and the narrowed scope of qualifying research institutions will apply only to employment contracts entered into on or after April 1, 2027, and therefore will not apply retroactively to existing contracts. Accordingly, companies that may not satisfy the new requirements may wish to enter into employment contracts by March 31, 2027, so that the existing eligibility requirements, including the bachelor’s degree requirement, continue to apply.     Companies should also review whether their research institutions satisfy the new requirements when assessing the availability of the tax incentives for planned foreign engineer hires.  

6. Implementation of the Side-by-Side Package – Introduction of the Side-by-Side, UPE, Substance-Based and Simplified ETR Safe Harbours (Article 80 of the International Tax Coordination Law; Articles 138, 138-3 and 138-4 of the Presidential Decree thereto, among others)

    The Proposals would incorporate key elements of the OECD/G20 Inclusive Framework’s Side-by-Side Package into Korea’s GloBE rules. The principal changes include the introduction of the following four safe harbours:       The Proposals would also make the following related amendments:     ■ Transitional UTPR Safe Harbour: The end date would be extended from December 30, 2026, to January 3, 2027, to accommodate MNE Groups using 52-week or 53-week fiscal years.     ■ Foreign Tax Credit for QDMTT: QDMTT paid in a foreign jurisdiction would be included among foreign taxes potentially eligible for the Korean foreign tax credit, subject to applicable requirements and limitations.     [ Practical Implications ]     MNE Groups with Korean operations should assess whether the new safe harbours may reduce their Pillar Two tax or compliance burden, particularly in light of their UPE jurisdiction and existing tax incentives. Groups should also consider the potential availability of Korean foreign tax credits for QDMTT paid overseas.  

7. Other Proposals Relevant to Foreign Investors and Non-Residents

    Other proposals relevant to foreign investors and non-residents include the following:     ■ Expansion of Foreign Investor Omnibus Accounts: ETFs and ETNs (excluding leveraged and inverse products) will be added to the financial products tradable through foreign investor omnibus accounts. The specific eligible products will be prescribed by Presidential Decree. The Proposal will apply to payments made on or after January 1, 2027.     ■ Acquisition Cost upon Re-Entry after Exit Tax: Where a former Korean tax resident who paid exit tax upon emigration re-enters Korea more than 5 years after departure and subsequently disposes of the relevant shares, the deemed disposal value applied for exit tax purposes will generally be treated as the cost basis of the shares. Certain exceptions will apply, including where the exit tax was refunded or the share value at re-entry is lower than at departure. The Proposal will apply to persons re-entering Korea on or after January 1, 2027.     ■ VAT Reverse Charge for Services Supplied by Foreign Companies: Where a foreign company has a Permanent Establishment (PE) that issues a tax invoice for a service, the service will be deemed connected with that PE. The reverse charge will therefore not apply, and the PE will be responsible for reporting and paying VAT.     ■ Deadline for Non-Resident Housing Tax Reduction: The existing tax reduction for qualifying non-residents who acquired housing between March 16, 2009, and February 11, 2010, will be limited to transfers made on or before December 31, 2028.  

8. Other Proposals Relating to Investment and R&D Tax Incentives

    The Proposals introduce a new domestic production tax credit and make several other changes to investment and R&D tax incentives:     ■ Domestic Production Tax Credit: A new tax credit will be available to Korean residents and domestic companies that directly produce and sell qualifying items in Korea. Eligible items will be selected from 6 categories: solar power, wind power, secondary batteries, semiconductors, key materials, and AI robot components, with specific items to be prescribed by Presidential Decree. To qualify, core production processes must be performed in Korea, prescribed domestic expenditure requirements must be met, and the relevant assets generally must not have benefited from the integrated investment tax credit. The credit will apply to production and sales in tax years beginning on or after January 1, 2027, and will be available through December 31, 2036.     ■ Regional Preferences for R&D and Investment Tax Credits: The R&D tax credit and integrated investment tax credit will be increased based on the location of the relevant R&D activity or investment. The applicable base credit rate will be multiplied by a regional preference coefficient ranging from 1.0 to 1.5, with higher coefficients generally applying outside the Seoul metropolitan area and in preferred areas. Separate accounting by place of business will be required. The Proposal will apply to R&D expenses incurred and investments made on or after January 1, 2027.     ■ Eco-Friendly Company Vehicles: The annual depreciation and disposal-loss deduction limit for electric and hydrogen company vehicles will increase from KRW 8 million to KRW 10 million per vehicle, while the limit for other vehicles will decrease to KRW 7 million. The Proposal will apply to vehicles newly acquired or leased on or after January 1, 2027.     ■ Expansion of National Strategic Technology: The existing “hydrogen” category of national strategic technology will be expanded into a broader “next-generation energy” category, with qualifying technologies to be prescribed by Presidential Decree. The Proposal will apply to R&D expenses incurred and investments made on or after January 1, 2027.     ■ Technology-Specific Sunset Dates: Instead of a single sunset date per technology group, sunset dates will be determined individually by reference to each technology's or facility's designation year.     [ Practical Implications ]     Companies planning significant investments should consider these new domestic production credit and regional preference when determining the structure and location of future investments. Companies should also review the revised vehicle deduction limits and technology-specific sunset dates in assessing the availability and timing of relevant tax incentives. The Lee & Ko Tax Group has extensive experience and expertise in both domestic and international tax matters. If you require assistance with any tax matters, including the issues discussed in this newsletter, please feel free to contact the Lee & Ko Tax Group at any time. [ See footnotes below ] 1. 20.9% including local income surtax. 2. 23.1% including local income surtax. Author Sang Hoon KIM Partner, Tom KWON Senior Foreign Attorney, Jung Ho RYU Partner, Steve Minhoo KIM Senior Foreign Attorney, Philje CHO Partner, Ross HARMAN Senior Foreign Attorney, Yeonhyung KIM Associate, Hae Min CHU Associate, Kyu Bin (K) KANG Foreign Attorney  

In December 2025, the National Assembly enacted tax law amendments that had previously been proposed by the Ministry of Economy and Finance (MOEF). These included amendments to the Corporate Income Tax Law (CITL), Individual Income Tax Law (IITL), International Tax Coordination Law (ITCL) and Restriction of Special Taxation Law (RSTL), National Tax Basic Law (NTBL), among others. On January 16, 2026, the MOEF published proposed amendments to the Presidential Decrees(1) to the tax law, including the Presidential Decrees to the CITL (CITL-PD), IITL (IITL-PD), ITCL (ITCL-PD) and RSTL (RSTL-PD) and NTBL (NTBL-PD), among others. Presidential Decrees are regulations published by the MOEF to elaborate details or specify matters prescribed in the tax law. Unlike tax law amendments, the amendment to the Presidential Decree were promulgated and entered into force in February 27, 2026, following the public notice and comment period, January 19 to February 5, 2026, and the completion of deliberations at the Vice Ministers’ Meeting and the State Council. The key items of this reform package relating to international taxation and cross-border investments are summarized below. Unless otherwise stated, all changes are effective as of the date of promulgation by the MOEF 1. Improvement to the Application Method for Foreign Tax Credits on Indirect Investments     ① Revised Method for Individual Investors (2)         For individual investors that are subject to comprehensive taxation, the IITL amendments introduce a new method for applying for foreign tax credits in respect of indirect investments (e.g. investments through a fund). Previously, if an individual earned foreign income indirectly, their foreign tax credit was calculated using a formula based on their Korean tax rate. This often limited the credit.         But under the new rule prescribed in the IITL amendments, the foreign tax credit is based on the actual foreign tax already paid or withheld, adjusted using specific adjustment factors. (3)     ② Rationalization of the Foreign Tax Credit Mechanism for Corporate Investors (4)         Previously, under the CITL, indirect foreign income taxes were not included in the company’s taxable income or in the foreign tax credit limit calculation. Because of this, a Korean company effectively could not fully claim credit for those foreign income taxes. Specifically, the limitation was calculated as: [Korean corporate income tax liability x (Total income received from funds / taxable base)]. Because indirect foreign income taxes were not included in either the taxable base or the limitation formula, they were not appropriately reflected in determining the allowable credit.         To address this structural issue, the CITL amendments introduced a new provision(5) requiring that indirect foreign income taxes eligible for credit be included in gross income and, consequently, reflected in the taxable base. In addition, the foreign tax credit limitation formula has been amended(6) as follows: [Korean corporate income tax liability x (Total income received from funds + Indirect foreign income tax) ÷ Taxable base)]. This amendment ensures that indirect foreign income taxes are appropriately taken into account in calculating the foreign tax credit limitation. 2. Introduction of a Penalty for Failure to Submit Foreign Company’s Liaison Office Status Report (7)     The obligation for foreign companies to submit an annual information report regarding the status of their liaison offices was introduced in 2022.(8) However, the absence of specific sanctions for non-compliance has limited the effectiveness of the regime, as instances of non-compliance have been frequent.     The CITL amendments contain a new provision to strengthen enforcement,(9) whereby the tax authority may issue a corrective order to a foreign company that fails to submit a liaison office status report with the requisite details, or that submits false information. Non-compliance with such an order can result in an administrative penalty of up to KRW 10 million. 3. Expansion of the Tax Base and Refinement of the Exit Tax Regime (10)     Under the IITL, exit tax(11) is a deemed capital gains tax on certain Korean company shares held by a Korean resident at the time of his/her permanent departure, when the individual ceases to be a Korean tax resident and satisfied specified requirements.     In light of the increasing volume of overseas equity investments by Korean residents, the scope of the exit tax was broadened to include foreign company shares under IITL amendment. The detailed taxation requirements and scope of applicable foreign shares have been delegated to the IITL-PD.     Specifically, the amended IITL-PD(12) provides that the following foreign company shares shall be excluded from exit tax regime: 1) foreign shares held by the departing resident where the total value does not exceed KRW 500 million at the time of departure; 2) foreign shares held by a foreign national working in Korea, provided that the foreign national was physically present and working in Korea for at least 80% of the worker’s Korean residence period during the ten years preceding the date of departure; and 3) foreign shares acquired by the foreign national’s spouse and under-age children prior to the commencement of the foreign national’s period of working in Korea. Items (2) and (3) apply only where the foreign national departs Korea within six months from the termination date of his or her employment in Korea).     The IITL-PD amendments(13) also further clarify the method for determining the deemed transfer value of foreign company shares subject to exit tax regime: 1) the listed shares are valued at the legally prescribed benchmark value per IITL; and 2) unlisted shares are valued based on a weighted average of the net profit value (3) and net asset value (2) per share.(14)     These amendments will apply to individuals departing Korea on or after January 1, 2027. 4. Enhancements to the Global Minimum Tax Regime and Introduction of the Domestic Minimum Top-up Tax (“DMTT”)     In response to the OECD Pillar Two framework, Korea introduced the Income Inclusion Rule (IIR) and the Under-taxed Payments Rule (UTPR) through earlier amendments to the ITCL promulgated on December 31, 2022. The IIR has applied from January 1, 2024; and the UTPR has applied from January 1, 2025.     In the 2025 ITCL amendments, the DMTT was also introduced.(15) In parallel, the Presidential Decree Amendments to the ITCL further refine and align Korea’s global minimum tax framework. In particular: (i) the domestic rules have been aligned with the OECD Global Anti-Base Erosion (GloBE) Model Rules and accompanying Commentary; (ii) the deadline for applying the transitional Country-by-Country Reporting (CbCR) safe harbor was extended, reflecting the OECD administrative guidance (until January 5, 2026); and (iii) detailed calculation methods and procedural requirements for the implementation of the DMTT have been set out. A detailed summary of the relevant amendments are as follows.     A. Complementing the Global Minimum Tax Framework(16)         The ITCL-PD has been amended to align more closely with the GloBE Model Rules and accompanying Commentary. The key amendments are summarized below:         1) Amendment to Art. 101 of the ITCL-PD clarifies the method for determining whether the consolidated revenue threshold is met after a merger. Where a standalone company merges with a corporate group, the company’s turnover must be aggregated with the group’s consolidated revenue for the purposes of assessing the threshold.         2) Amendments to Arts. 111(1) and (2) of ITCL-PD expand the scope of allocation of top-up tax to include entities that are not Constituent Entities (CEs) of the multinational enterprise (MNE) group but are nonetheless subject to the adjusted covered taxes.         3) Amendment to Art. 111(1)(3) of ITCL-PD clarifies that, where the jurisdiction of establishment does not operate a corporate income tax system, hybrid entity rules also apply to entities that are not treated as taxable entities under Art. 108(2) of ITCL-PD.         4) New provisions in Arts. 111(3) and (4) of ITCL-PD introduce a method for allocating accounting deferred tax expenses of a CE for the purposes of calculating adjusted covered taxes. The rules clarify how deferred tax expenses may be allocated or excluded in determining adjusted covered taxes.         5) Amendment to Art. 119 of ITCL-PD amends the terminology used in calculating the current additional top-up tax under Art. 40(4) of the ITCL. The previous references to “estimated adjusted covered tax” and “adjusted covered tax” are replaced with “estimated aggregate amount of adjusted covered taxes” and “aggregate amount of adjusted covered tax” to ensure greater clarity and consistency.         6) Amendment to Art. 125-2 of ITCL-PD clarifies the statutory allocation method among domestic CEs in respect of top-up tax allocated under the UTPR, specifying the allocation ratio by reference to the location of the ultimate parent entity (UPE).         7) Amendment to Art. 133(1) of ITCL-PD refines the terminology applicable to deductions from GloBE income where the UPE is a flow-through entity. The phrase “tax resident in the UPE’s jurisdiction” is replaced with “established and operated in the UPE’s jurisdiction” to better reflect the legal status of such entities.         8) Amendment to Art. 139 of ITCL-PD revises the method for calculating the total deferred tax adjustment amount for the first year of application and subsequent fiscal years, thereby enhancing consistency in the operation of the regime     B. Extension of the Transitional CbCR Safe Harbor(17)         1) The ITCL-PD amendments will also extend the application period of the transitional CbCR safe harbor. This safe harbor deems that no top-up tax is payable where the simplified effective tax rate (ETR), calculated based on CbCR data under the simplified methodology, meets the prescribed threshold (15–17%). The deadline for applying the Transitional CbCR Safe Harbor has been extended by one year, to fiscal year beginning before December 31, 2027 and ending before June 30 and the applicable simplified ETR threshold for the extended period has been set at 17%. Additionally, the exemption from the UTPR, which provides that no UTPR top-up tax is allocated where the statutory corporate tax rate in the UPE’s jurisdiction is at least 20%, has also been extended. This exemption applies to fiscal years beginning before December 31, 2025 and ending before December 30, 2026.     C. Introduction of the DMTT         The ITCL-PD amendments also introduce DMTT in line with the OECD GloBE Model Rules and related administrative guidance. The DMTT is intended to meet the requirements as a Qualified DMTT (QDMTT) under the OECD Inclusive Framework, subject to peer review and approval. The amount of QDMTT is calculated as follows: [Minimum tax rate (15%) – ETR of domestic CEs] x Excess profit (Net GloBE income – Substance Based Income) + Current Additional Top-up Tax. Given that Korea’s statutory corporate income tax rate ranges from 10% to 25%, exclusive of local taxes, under the CITL amendments, it is not anticipated that a significant number of domestic corporations will fall below the 15% minimum rate. However, where the ETR is reduced due to tax incentives, exemptions, or credits, the DMTT may become applicable. In such cases, the QDMTT will take precedence over the IIR and the UTPR.         A detailed summary of the ITCL-PD amendments are summarized below:         1) Calculation of Adjusted Covered Taxes for Purposes of the Domestic Top-up Tax (DMTT)(18) In determining the DMTT, the calculation of adjusted covered taxes generally follows the methodology prescribed under the GloBE framework. However, certain covered taxes allocated to a domestic CE from foreign CEs for the purposes of the GloBE calculation are excluded when computing the DMTT.             The specific scope of such exclusions has been delegated to the ITCL-PD. Under the ITCL-PD amendments, the following covered taxes are excluded from the calculation of adjusted covered taxes for DMTT purposes: (i) covered taxes recorded by a foreign head office that are attributable to income derived by a domestic permanent establishment (PE); and (ii) covered taxes recorded by a foreign shareholder CE that are attributable to: 1) income of hybrid entities that are domestic CEs; 2) dividend income received from domestic CEs; and 3) Income of domestic CEs treated as controlled foreign corporations (CFCs).         2) Scope of Permanent Establishments (“PEs”) Subject to the DMTT(19)             The scope of PEs subject to the DMTT, particularly in the case of a stateless or flow-through entity deemed not to have a jurisdiction of residence, has been delegated to the ITCL-PD. Under the ITCL-PD amendments, where the head office conducts business in Korea through a “Type 4 PE” (a PE whose income is not subject to taxation in any jurisdiction), the DMTT will be computed separately with respect to that PE.         3) Statutory Apportionment of DMTT Among Domestic CEs(20)             The DMTT attributable to an MNE group may be allocated among domestic CEs either through a statutory allocation method or a designated allocation method.             The detailed statutory allocation rules have been delegated to the ITCL-PD. Under the ITCL-PD amendments: (i) in principle, the DMTT is allocated in proportion to the GloBE income of each domestic CE; and (ii) where there is no net GloBE income for the relevant fiscal year, but DMTT arises due to accumulated adjustments, the allocation is determined as follows: 1) where the ETR and DMTT are recalculated for a prior fiscal year, the additional domestic tax is allocated based on the GloBE income of each CE for that prior year; and 2) where the adjusted covered tax amount is lower than the estimated adjusted covered tax amount and the difference is treated as additional DMTT, the tax is allocated in proportion to the difference calculated for each CE         4) Reporting and Payment of DMTT(21), Calculation of GloBE Top-up Tax that apply to other DMTT(22), and Other Special Rules(23)             The reporting and payment procedures applicable to the allocation of the DMTT follow the same framework as that applicable to the allocation of top-up tax under the global minimum tax regime.             In addition, the methods for calculating covered taxes, adjustments to covered tax, and determining the ETR follow the same methodology as that used for the calculation of top-up tax for global minimum tax purposes. Various special provisions applicable to the global minimum tax (such as the de minimis exclusion, special rules for minority-owned entities, investment CEs, and joint ventures, as well as applicable exclusions) also apply to the DMTT. 5. Introduction of a Domestic Investment Income Exemption for the Bank for International Settlements (“BIS”) (24)     BIS is an international financial institution established to promote cooperation among central banks worldwide. Funds deposited with the BIS by national central banks and international organizations are invested and managed in assets of major jurisdictions. At present, the BIS invests in Korean government bonds and monetary stabilization securities (treasury bills), which are exempt from Korean taxation.     To support the BIS’s expansion of KRW-denominated investments, the BIS’s domestic investment income (interest, dividends, securities transfer gains, and other income) is now included within the scope of tax exemption applicable to interest income from international financial transactions.(25)     The RSTL-PD amendments (Art. 18) further delegates detailed matters, including the scope of eligible international financial organizations, the specific categories of exempt income, the application procedure for exemption, and the process for claiming such exemption. Specifically: 1) “Other income” eligible for exemption is limited to income derived from economic benefits related to domestic assets under Art. 93(10) k) of the CITL; 2) the application procedure for exemption follows the existing procedure applicable to interest and transfer income from government bonds earned by foreign corporations; and 3) the claim procedure for exemption follows the procedure applicable to treaty-based tax exemptions for foreign companies. 6. Introduction of Special Tax Treatment for In-kind Contribution of Shares in a Foreign Company (26)     To support the overseas business restructuring of domestic corporations, the amended RSTL introduces a tax deferral mechanism for capital gains arising from the in-kind contribution of shares in a foreign company by a domestic corporation to another foreign company. Under this provision, where a domestic corporation that has been in business for at least five years makes an in-kind contribution of shares or equity interests in a foreign subsidiary in which it holds at least 20% to a foreign corporation in which it holds at least 80%, taxation of the capital gains arising from the transaction is deferred for 4 years. The deferred capital gains are then included in taxable income in equal installments over the subsequent 3 years.     Detailed matters including the method for calculating the deferred capital gain and the circumstances triggering termination of the deferral (such as a subsequent disposal of the contributed shares) have been delegated to the RSTL-PD amendments. Under the amended RSTL-PD, where shares acquired through the in-kind contribution are subsequently disposed of, the amount to be included in taxable income is calculated as follows:     Capital gains from the in-kind contribution not yet included in taxable income as of the end of the previous fiscal year × (Number of shares disposed of during the fiscal year ÷ Number of shares held at the end of the previous fiscal year that were acquired through the in-kind contribution).     In addition, the tax deferral will be terminated where: (i) the transferee disposes of more than 50% of the shares in the foreign corporation acquired through the in-kind contribution; or (ii) the contributing company’s ownership interest in the transferee falls below 50%. In such cases, the entire remaining balance of the deferred capital gain that has not yet been included in taxable income will be recognised as income in the relevant fiscal year. 7. Clarification of the Criteria for Recognizing an “Agent PE” (27)     The IITL-PD and CITL-PD amendments align the criteria for recognizing an Agent PE with OECD standards. In particular, the requirement has been revised from referring to “an independent agent that conducts a significant portion of its business primarily for a specific foreign corporation” to “an independent agent that conducts a significant portion of its business wholly or almost wholly for a related party.” 8. Streamlining Documentation for Claims of Exemption on Interest and Capital Gains from Government Bonds (28)     The CITL amendments simplifies the documentation requirements for non-residents and foreign companies seeking tax exemption on interest and capital gains derived from government bonds. In particular, the former “Application for Tax Treaty Exemption or Reduction” has been renamed the “Tax Treaty Exemption Claim Form for Interest and Capital Gains on Government Bonds.” In addition, the revised rules permit the submission of alternative documentation demonstrating non-resident or foreign company status in lieu of the previously required certificate of residence.     This amendment applies to claims filed on or after the effective date of the revised provisions. 9. Expansion of the Scope of Partial Tax Audits in Relation to Advance Pricing Agreements (“APAs”) (29)     Previously, where an application for an APA is submitted prior to the notification of a tax audit, the audit may be suspended solely with respect to the transfer pricing aspects of the relevant international transactions for the period covered by the APA application.(30) The NBTL-PD amendments expanded the scope of partial tax audits in order to enhance the effectiveness of tax audit with respect to the APA implementation. Under the amended NBTL-PD, even where an APA application is subsequently cancelled, withdrawn, or the review process is suspended after submission, the tax authorities may conduct a partial tax examination in respect of the matters covered by the APA application.     This measure will apply to tax audits initiated on or after the effective date of the amended NBTL-PD (expected to be in the last week of February 2026, since it takes effect immediately upon promulgation). The Tax Group at Lee & Ko possesses extensive experience and expertise in both domestic and international tax matters. Please feel free to contact us should you require assistance with any tax-related matters, including those discussed in this newsletter. (1) Also referred to as Enforcement Decrees. (2) IITL, Art. 57-2(2) and (3); IITL-PD Art. 117-2(3) and (5) (3) IITL, Art. 57-2(2) (4) CITL, Art. 15(2) and 57-2(1)-(3); CITL-PD, Art. 94-2(3)-(4) (5) CITL, Art. 15(2), sub-paragraph 3 (6) CITL, Art. 57-2(2) (7) Art. 124(2) of the CITL, Appendix 2 to the CITL-PD (8) CITL, Art. 94(2) (9) CITL, Art. 124(2) (10) IITL, Art. 118-9 to 118-18; ITL-PD Art. 178-8(2) and 178-9(2) (11) IITL, Art. 118-9 (12) IITL-PD, Art. 178-8(2) (13) IITL-PD, Art. 178-9(2) (14) This is calculated in accordance with Art. 63 of the Inheritance and Gift Tax Law, at a ratio of 3:2. (15) ITCL, Art. 73-2 to 73-7 (16) ITCL-PD, Art. 101, 111, 119, 125-2, 113(1), 139 (17) ITCL-PD, newly established Art. 138(1)-(6) (18) ITCL, Art. 73-3; ITCL-PD, Art. 125-3(2) and (3) (19) ITCL, Art. 73-5(5); ITCL-PD Art. 125-6 (20) ITCL, Art. 73-7(2); ITCL-PD, Art. 125-8 (21) ITCL, Art. 73-7(2); ITCL-PD, Art. 125-8 (22) ITCL Art. 73-3 to 73-6; ITCL-PD Art. 125-3 to 125-5, 125.7 (23) ITCL Art. 74, 75, 77, 79, 80; ITCL-PD Art. 126, 131, 135, 137, 138 (24) RSTL, Art. 21(4)-(6); RSTL-PD, Art. 17 (25) RSTL, Art. 21 (26) RSTL, Art. 38-4; RSTL-PD, Art. 35-6 (27) IITL-PD, Art. 180; CITL-PD, Art. 133 (28) IITL-PD, Art. 207-2; CITL-PD, Art. 138-4 (29) Presidential Decree of the National Basic Tax Law (“NBTL-PD”), Art. 63-12 (30) Regulations on the Administration of International Tax Affairs, Art. 81