Corporate Tax Top Rate Reduced to 22%... Business Community Responds with "Increased Investment and Job Creation" (Comprehensive 2)

Corporate Tax Top Rate Reduced to 22% Raised During Moon Administration
Tax Brackets Simplified... Inheritance Tax Also Eased
Business Community Unanimously Welcomes "Will Expand Investment and Create Jobs"

Deputy Prime Minister and Minister of Economy and Finance Choo Kyung-ho is announcing the new government's economic policy direction on the 16th at the Government Seoul Office in Jongno-gu, Seoul. From the left, Minister Lee Young of the Ministry of SMEs and Startups, Minister Lee Jeong-sik of the Ministry of Employment and Labor, Deputy Prime Minister Choo, Minister Won Hee-ryong of the Ministry of Land, Infrastructure and Transport, and First Vice Minister Jang Young-jin of the Ministry of Trade, Industry and Energy. Photo by Kim Hyun-min kimhyun81@

[Asia Economy Reporter Oh Hyung-gil] The corporate tax top rate will be lowered from 25% to 22%, and the payment of inheritance tax will be deferred when a family business is succeeded, significantly reducing the tax burden on companies. The four-tiered tax bracket will also be simplified back to the pre-Moon Jae-in administration system.

The business community, which had long demanded a reduction in the excessively high corporate tax compared to major countries, unanimously welcomed the move and pledged to actively support it by expanding investment and creating quality jobs. The previously announced investment plans exceeding 1,000 trillion won by major companies are also expected to gain momentum and become more concrete.

Yoon Administration Lowers Corporate Tax to Revitalize Corporate Investment

On the 16th, the government announced in the ‘New Government Economic Policy Direction (Saegyeongbang)’ that tax regulations will be rationally readjusted to maximize the freedom and creativity of the private sector, companies, and markets.

The corporate tax, which was raised from 22% to 25% during the Moon Jae-in administration in 2018, will be reduced back to 22%. The tax brackets will be reduced from the current four tiers to two or three tiers.

Earlier, the Yoon administration emphasized the need to lower corporate tax immediately after its inauguration. Deputy Prime Minister and Minister of Economy and Finance Choo Kyung-ho announced the corporate tax reform plan during the parliamentary confirmation hearing and press conferences. At a meeting with economic organization heads on the 2nd, he stressed, "We plan to actively support corporate-led investment and job creation through bold regulatory reforms and tax system reforms, including corporate tax."

The business community has also continuously requested lowering the excessive corporate tax compared to major countries. The Korea Chamber of Commerce and Industry released the ‘2022 Tax System Improvement Proposal’ on the 13th, which included lowering the corporate tax rate. Globally, there has been fierce competition to attract multinational corporations by lowering corporate tax rates, but South Korea has gone against this global trend by raising corporate tax rates.

The current corporate tax brackets are divided as follows: up to 2 billion won at 10%, 2 billion to 20 billion won at 20%, 20 billion to 300 billion won at 22%, and over 300 billion won at 25%. The government pointed out that globally, most countries apply a single tax rate or a two-tier progressive tax rate for corporate tax, and the four-tier progressive tax rate like ours is rare and overly complicated. Especially, applying a progressive tax rate to corporations reduces their investment capacity, risking falling behind advanced countries in competition. Therefore, the aim is to simplify the unreasonable four-tier progressive tax structure to enhance corporate international competitiveness.

The tax system on retained earnings dividends both domestically and internationally will also be improved. The non-taxable portion (exclusion rate) of dividends received by domestic corporations from domestic subsidiaries varies between 30% and 100% depending on whether the subsidiary is listed or unlisted and the shareholding ratio, but this will be simplified going forward.

Currently, dividends received by domestic corporations from overseas subsidiaries are included in the domestic parent company's income and taxed with corporate tax, but going forward, these will be excluded from taxable income. The intention is to provide tax benefits on income earned by companies to encourage domestic inflow, thereby revitalizing investment and employment.

President-elect Yoon Suk-yeol is attending a luncheon meeting with the heads of six economic organizations at the Presidential Transition Committee in Tongui-dong, Jongno-gu, Seoul on the 21st, delivering a greeting./Photo by Yoon Dong-ju doso7@

Enhance Sustainability... Also Ease Inheritance Tax Payment Burden

A new system will be introduced to defer inheritance tax payment until the time of transfer, inheritance, or gift for heirs who succeed a family business under certain conditions. This aims to prevent cases where general companies sell their shares to pay inheritance and gift taxes upon succession, weakening control or selling to outsiders.

The sales revenue threshold for family business succession will be expanded from 400 billion won to 1 trillion won, and the post-management period will be relaxed from 7 years to 5 years. If certain conditions are met, the government is also considering deferring payment even if the first heir passes the business on again.

Meanwhile, the limit on the deduction of carried-forward losses will be raised from 60% to 80% of the business year's income for general corporations, and the special tax provision promoting investment and win-win cooperation, which required additional corporate tax payment of 20% on income not reinvested through investment, wages, and cooperation, will be abolished.

In this regard, the business community unanimously expressed their welcome. The Korea Chamber of Commerce and Industry stated in a press release that "It is an appropriate direction that the new government will focus on enhancing corporate vitality and strengthening industrial and corporate competitiveness through bold regulatory reforms under the principle of ‘private sector-led’ over the next five years," and added, "We hope that the five major structural reform tasks in public, labor, education, finance, and services will be steadily pursued to increase the dynamism of our economy and reverse the prolonged low-growth phase."

The Federation of Korean Industries also said, "We will respond to the government's economic management direction by expanding investment and actively supporting the creation of quality jobs." They advocated for significant improvements in the corporate tax system, including lowering corporate tax rates and abolishing the investment and win-win cooperation promotion tax, as well as reforms in working hours and wage systems to respond to the changed labor environment.

The Korea Employers Federation also expressed in a statement, "It is expected to help improve the business conditions of companies struggling with rising raw material prices and high inflation." They added, "The ‘New Government Economic Policy Direction’ will enhance the vitality of the private economy and improve the economic structure through deregulation and fostering advanced industries," and pledged, "We will continuously communicate and cooperate with the government to spread the atmosphere of active corporate investment and job creation throughout the industry."

The Korea International Trade Association also said, "The trade sector greatly welcomes this economic policy direction, which is based on a free market economy and the establishment of a fair market order," emphasizing, "We highly appreciate the government's will to restore dynamism to the private-centered market through bold regulatory improvements and strengthen the foundation so that small and venture companies can grow into a solid pillar of the economy."

This content was produced with the assistance of AI translation services.