Korean Tax Law Changes in 2024

The government’s tax reform bill (“government’s bill”) was sanctioned by the National Assembly on December 21, 2023 with several amendments and additions.

We had provided the summary of government’s bill in our earlier editions of Tax Newsletters in July and September 2023. Below are some major amendments and additions compared to the original government’s bill for 2024. Most of the tax law changes we discussed below came into force from the fiscal year starting, or income earned, on or after January 1, 2024 unless indicated otherwise.

I. Individual Income Tax Law (IITL)

l Expansion of child tax credit

*1. Applicable from individual income tax return filing or year-end settlement on or after January 1, 2024.

l Increase in exemption limit of childcare allowance

Under the amended IITL, the exemption limit of the childcare allowance received from an employer in connection with the birth of a child or the care of a child under six years of age will increase from Won 100,000 to Won 200,000 per month effective from January 1, 2024.

To benefit from this non-taxable treatment of childcare allowance of Won 200,000 max per month, the employment contract shall be updated properly to reflect the exact amount of childcare allowance as a separate pay element. The monthly payslips shall also be updated to show the childcare allowance component as a separate line item.

l Implementation of monthly submission obligation of simplified withholding tax statements for wage and salary income deferred for two years until January 2026

Under the previous IITL, the filing frequency of the simplified withholding tax statement filing obligation for salary and wage income has changed from a bi-annual to a monthly basis starting from January 2024.

However, considering the significant increase in administrative burden of companies as withholding agents resulting from this submission frequency change from bi-annual to monthly, the revised IITL grants a 2-year grace period before implementing the monthly filing obligation. As such, the filing frequency change from bi-annual to monthly will take effect from January 2026.

II. Corporate Income Tax Law (CITL)

l Maintaining the shareholding requirements for dividend received deduction (DRD) paid from foreign subsidiary

III. Special Tax Treatment Control Law (STTCL)

l Extension of application period of tax reduction in individual income tax for qualified foreign technicians and engineers

Previously, qualified foreign(non-Korean) technicians and engineers in Korea who began working before December 31, 2023 could enjoy a 50% income tax reduction for 10 years. However, this tax reduction has been extended until December 31, 2026, while the government bill proposed an extension to December 31, 2028.

l Extension of application period of flat tax rate for foreign(non-Korean) expatriate employees in Korea

The application period of the flax tax rate for foreign expatriate employees in Korea has been extended until December 31, 2026, while the government bill proposed an extension to December 31, 2028.

In addition, for foreign employees who have applied the flat tax rate, housing benefits provided by the employer will be excluded from earned income of foreign employees concerned permanently. This sunset provision of excluding company housing benefits from earned income was originally scheduled to expire on December 31, 2023.

l Extension of application period of income tax reduction for employees of small and medium-sized enterprises (SMEs)

Under the revised STTCL, the application period of income tax reduction for employees of SMEs has been extended until December 31, 2026, which was previously by December 31, 2023.

IV. Others

l Introduction of income deduction for credit card spending increase in 2024

For credit card spending in 2024 which surpasses the amount of credit card spending in 2023, 10% of the amount exceeding 105% of the credit card expenditure in 2023 will be deducted from taxable income, capped at KRW 1 million.