Public Procurement Service "Improvement in Stamp Tax Imposition on Procurement Contracts... About Half Reduction in Taxable Cases"

The Public Procurement Service (PPS) has improved the method of imposing stamp tax, which had been uniformly applied to all procurement contracts, by selectively applying it only to contracts that require stamp tax. As a result, the number of contracts subject to stamp tax is expected to be reduced by about half.

According to the PPS on the 11th, stamp tax has been imposed on all procurement contracts exceeding 10 million KRW since 2011, due to difficulties in distinguishing between construction contracts and sales contracts.

A construction contract is effective when one party agrees to complete a certain work and the other party agrees to pay compensation based on the result of the work. Stamp tax was imposed on construction documents prepared according to the State Contract Act or Local Contract Act.

However, this method of imposing stamp tax was uniformly applied in the field, increasing the burden on procurement companies.

Accordingly, the PPS prepared the "2024 Public Procurement Killer Regulation Innovation Plan" announced last month, and after reviewing related laws and authoritative interpretations, it reexamined the nature of contracts based on substance and improved the system to impose stamp tax only on procurement contracts that meet the definition of construction contracts under the Stamp Tax Act and Civil Act. The key point is that stamp tax will not be imposed on supply contracts and unit price contracts among total amount contracts that do not qualify as construction contracts.

A supply contract is a contract in which one party currently bears the obligation to transfer ownership of the subject matter at a certain time after the contract is concluded. A unit price contract is a form of sales contract where multiple public institutions use frequently demanded goods and enter into contracts by setting unit prices in advance, which does not meet the definition of construction contracts.

The PPS expects that with this system improvement, the number of contracts subject to stamp tax that procurement companies must pay during the contract process will decrease by about 45%. Based on PPS contract standards, stamp tax will not be imposed on about 16,000 out of approximately 35,600 cases, resulting in an annual cost reduction of 3.05 billion KRW for procurement companies, according to the PPS's calculations.

Lim Gi-geun, Administrator of the PPS, said, “Reducing the number of contracts subject to stamp tax by half is an example of actively identifying and abolishing killer regulations that have been continued as a practice.” He added, “The PPS will continue to identify unreasonable regulations that hinder the management activities of procurement companies and strive to improve them rapidly from the perspective of procurement companies.”

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