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Laws of the Republic of Korea |
1
RESTRICTION OF SPECIAL TAXATION ACT
Wholly Amended by Act No. 5584, Dec. 28, 1998
Amended by Act No. 5960, Mar. 31, 1999
Act No. 5980, Apr. 30, 1999
Act No. 5982, May 24, 1999
Act No. 5996, Aug. 31, 1999
Act No. 6045, Dec. 28, 1999
Act No. 6054, Dec. 28, 1999
Act No. 6055, Dec. 28, 1999
Act No. 6073, Dec. 31, 1999
Act No. 6136, Jan. 12, 2000
Act No. 6194, Jan. 21, 2000
Act No. 6273, Oct. 21, 2000
Act No. 6297, Dec. 29, 2000
Act No. 6299, Dec. 29, 2000
Act No. 6305, Dec. 29, 2000
Act No. 6312, Dec. 29, 2000
Act No. 6372, Jan. 16, 2001
Act No. 6480, May 24, 2001
Act No. 6501, Aug. 14, 2001
Act No. 6510, Aug. 14, 2001
Act No. 6519, Nov. 21, 2001
Act No. 6538, Dec. 29, 2001
Act No. 6689, Apr. 20, 2002
Act No. 6705, Aug. 26, 2002
Act No. 6708, Aug. 26, 2002
Act No. 6762, Dec. 11, 2002
Act No. 6852, Dec. 30, 2002
Act No. 6867, May 10, 2003
Act No. 6916, May 29, 2003
Act No. 7003, Dec. 30, 2003
Act No. 7030, Dec. 31, 2003
Act No. 7066, Jan. 20, 2004
Act No. 7191, Mar. 12, 2004
Act No. 7210, Mar. 22, 2004
Act No. 7216, Jul. 26, 2004
Act No. 7220, Oct. 5, 2004
Act No. 7240, Oct. 22, 2004
Act No. 7281, Dec. 31, 2004
Act No. 7284, Dec. 31, 2004
Act No. 7311, Dec. 31, 2004
Act No. 7322, Dec. 31, 2004
Act No. 7332, Jan. 5, 2005
Act No. 7428, Mar. 31, 2005
Act No. 7577, Jul. 13, 2005
Act No. 7601, Jul. 13, 2005
Act No. 7678, Aug. 4, 2005
Act No. 7775, Dec. 29, 2005
Act No. 7839, Dec. 31, 2005
RESTRICTION OF SPECIAL TAXATION ACT
2
Act No. 7845, Jan. 2, 2006
Act No. 7849, Feb. 21, 2006
Act No. 7949, Apr. 28, 2006
Act No. 8050, Oct. 4, 2006
Act No. 8086, Dec. 26, 2006
Act No. 8138, Dec. 30, 2006
Act No. 8146, Dec. 30, 2006
Act No. 8347, Apr. 11, 2007
Act No. 8362, Apr. 11, 2007
Act No. 8367, Apr. 11, 2007
Act No. 8371, Apr. 11, 2007
Act No. 8387, Apr. 27, 2007
Act No. 8466, May 17, 2007
Act No. 8493, Jun. 1, 2007
Act No. 8572, Aug. 3, 2007
Act No. 8827, Dec. 31, 2007
Act No. 8852, Feb. 29, 2008
Act No. 8966, Mar. 21, 2008
Act No. 8986, Mar. 28, 2008
Act No. 9088, Jun. 5, 2008
CHAPTER GENERAL PROVISIONS
Article 1 (Purpose)
Article 2 (Definitions)
Article 3 (Restrictions of Special Taxation)
CHAPTER DIRECT NATIONAL TAXES
SECTION 1 Special Cases of Taxation for Small or Medium Enterprises
Article 4 Deleted.
Article 5-3 Deleted.
Article 8-2 Deleted.
3
Article 10-2 (Special Taxation for Contribution, etc. for Research and Development)
Article 11 (Tax Credit for Investment in Facilities
for Research and Man-
Article 12 (Special Taxation on Income from Transfer of Technology, etc.)
Article 12-2 (Reduction or Exemption
of Corporate Tax, etc. for High-Tech Enterprises,
etc. Located in Special Research and Development Zones)
Article 13 (Non-Taxation
on Gains from Stock Transfer by Small or Medium Start-up
Business Investment Company, etc.)
Article 14 (Special Taxation for Investments in Small or Medium start-up Business
Investment Company, etc.)
Article 15 (Special Taxation for Stock Option)
Article 16 (Income Deduction for Contribution, etc. to Small or Medium Start-up Business
Investment Association)
Article 17 Deleted.
Article 22 (Corporate Tax Exemption on Dividend Income from Investment in Overseas
Resource Development)
Article 23 (Inclusion of International Ship Transfer Margin in Deductible Expenses)
SECTION 4 Special Taxation for Investment Promotion
Article 24 (Tax Credit for Investment, etc. in Productivity Increase Facilities)
Article 25 (Tax Credit for Investment, etc. in
Facilities for Safety)
Article 25-2 (Tax Credit for Investment in Energy-Economizing Facilities)
Article 25-3 (Tax Credit for Investment
in Facilities for Environmental Conservation)
Article 25-4 (Tax Credit for Investment in Facilities for Improved Quality Management
of Medicines)
Article 26 (Temporary Tax Credit for Investment)
Articles 27 and 27-2 Deleted.
Articles 30-2 and 30-3 Deleted.
RESTRICTION OF SPECIAL TAXATION ACT
4
Article 32 (Carryover Taxation of Transfer Income Tax on Conversion into Corporation)
Article 33 (Special Taxation for Small or
Medium Enterprises and Trade-Adjusted
Enterprises Whose Business is Converted)
Article 33-2 (Abatement or Exemption of Tax Amount for Small or Medium Enterprises
and Trade-Adjusted Enterprises Whose Business
is Converted)
Article 34 Deleted.
Article 38-3 (Special Taxation for Investment in Kind in Stocks, etc. of Foreign Affiliated
Company by Domestic Corporation)
Article 39 (Special Taxation for Acceptance and Redemption, etc. of Guarantee Liabilities)
Article 40 (Abatement or Exemption of
Transfer Income Tax Following Property Transfer
by Stockholders, etc.)
Article 41 Deleted.
Article 42 Deleted.
Article 43-2 (Special Taxation of Corporate Tax on Margins Accruing from Transfer of
Land, etc. Acquired as Measures to Assist in
Corporate Restructuring)
Article 44 (Special Taxation on Gains from Debt Exemption of corporation Subject to
Decision to Authorize
Rehabilitation Plan, etc.)
Article 45 (Special Taxation on Corporate Improvement Operations)
Article 45-2 (Special Taxation on Division under Corporate Improvement
Operations)
Article 46 (Special Taxation on Stock Exchange between Enterprises)
Article 46-2 (Special Taxation for Corporate Stock
Exchange, etc. for Strategic Alliance
with Venture Business)
Article 46-3 (Special Taxation for Corporate Stock Exchange, etc. for Strategic Partnership
of Logistics Enterprises)
Article 46-4 (Special Taxation of Corporate Tax on Margins Accruing from Transfer of
Self-Distribution Facilities)
Article 46-5 (Special Taxation on Division of Distribution Business)
Article 46-6 (Special Taxation for Succession to Deficits Carried
Forward Following Merger
of Logistics Corporations)
Article 47 (Special Taxation for Stock Exchange by Newly-Established Corporations,
etc.)
Article 47-2 (Special Taxation, etc. for Succession to Deficits Carried Forward following
Merger)
Article 47-3 (Special Taxation for Succession to Deficit Carried Forward following Merger
with Venture Business)
SECTION 6 Special Taxation for Restructuring Financial Institutions
RESTRICTION OF SPECIAL TAXATION ACT
5
Article 47-4 (Special Taxation for Transfer of Redundant Assets as Result of Merger)
Article 48 Deleted.
Articles 50 and 51 Deleted.
Article 52-2 (Special Taxation for Establishment, etc. of Financial Holding Company)
Article 53 Deleted.
Article 55 (Special Taxation for Special Company for Corporate Restructuring, etc.)
Article 55-2 (Special Taxation for Self-Managed
Real Estate Investment Company, etc.)
Article 56 Deleted.
SECTION 7 Special Taxation for Balanced Regional Development
Articles 58 and 59 Deleted.
Article 61 (Special Taxation for Corporate Tax on Transfer Margin Following Relocation
of Corporation s Head Office to Outside of
Over-concentration Control Zone of Seoul
Metropolitan Area)
Article 62 Deleted.
Article 64 (Tax Reduction or Exemption for Enterprises, etc. Located in Agro-industrial
Complex)
Article 65 Deleted.
Article 67 (Exemption, etc. from Corporate Tax for Fishery Partnership Corporation,
etc.)
Article 68 (Corporate Tax Exemption, etc. for Incorporated Agricultural Corporation)
Article 69 (Reduction of or Exemption from
Transfer Income Tax for Self-Cultivating
Farmland)
Article 70 (Reduction or Exemption of Transfer Income Tax on Substitute Land for
Farmland)
Article 71 (Reduction or Exemption of Gift Tax on Farmland, etc. Given to Farming
Offsprings)
SECTION 8 Special Taxation for Support of Public Projects
RESTRICTION OF SPECIAL TAXATION ACT
6
Article 72 (Special Taxation of Corporate Tax on Partnership Corporation, etc.)
Article 72-2 Deleted.
Article 74 (Special Case of Inclusion of Reserves for Business Proper to Specific Purpose
in Deductible Expenses)
Article 75 Deleted.
Article 77-2 (Special Taxation for Transfer Income Tax on Compensation by Substitute
Land)
Articles 78 through 81 Deleted.
Article 85-4 (Special Taxation of Corporate Tax on Investment of Land in Kind for Free
Economic Zone Development Projects)
Article 85-5 (Special Taxation on Margins Accruing from Transfer of Land, etc. for Nursery
Facilities)
Article 85-6 (Abatement or Exemption of Corporate Tax, etc. on Social Enterprises)
Article 85-7 (Special Taxation for Relation of
Factories Due to Expropriation for Public
Works)
SECTION 9 Special Taxation for Support of Savings
Article 86 (Income Deduction, etc. for Private Annuity Savings)
Article 86-2
(Income Deduction, etc. for Annuity Savings)
Article 86-3 (Income Deduction, etc. for Mutual-Aid Installments of Small Enterprises
and Small Commercial and Industrial Businessmen)
Article 87 (Tax Exemption, etc. for Long-term Savings for Housing Purchase)
Article 87-2 (Non-taxation, etc. on High-yield High-risk
Trust Savings)
Article 87-3 (Tax Deduction on Long-term Securities Savings)
Article 87-4 Deleted.
7
Article 89-3 (Lower Rate of Tax on Deposits in Cooperatives, etc.)
Article 90 Deleted.
Article 91-2 (Special Taxation on Dividends from Investment Companies, etc.)
Article 91-3 Deleted.
Article 91-5 (Special Taxation for Real Estate Indirect Investment Fund, etc.)
Article 91-6 (Special Taxation on Dividend Income
of Stocks of Overseas Resources
Development Investment Company, etc.)
Article 91-7 (Special Taxation for High-yield High-risk Investment Trusts, etc.)
Article 91-8 (Special Taxation on Investment Trust
for Public Donation)
SECTION 10 Special Taxation for Stabilization of National Living
Article 92 (Separate Taxation, etc. on Lottery
Prize Income, etc.)
Article 93 Deleted.
Article 97-2 (Special Cases of Reduction or Exemption of Transfer income Tax on
Newly-Built Rental Houses)
Article 98 (Special Taxation on Houses Unsold in Lots)
Article 99 (Reduction of or Exemption from Transfer Income Tax for Purchasers
of
Newly-built Housing)
Article 99-2 Deleted.
Article 99-4 (Special Taxation of Transfer Income Tax for Purchasers of Rural or Fishing
Village Houses)
Article 100 (Special Taxation for Assistance in Stability of Employees Housing Situation)
SECTION 10-2 Special Taxation for Encouragement
of Labor
Article 100-2 (Earned Income Tax Credit)
Article 100-3 (Eligibility for Application for Earned Income Tax Credit)
Article 100-4 (Requirements of Dependent Children s Livelihood
and Time of
Determination Thereof)
Article 100-5 (Calculation of Earned Income Tax Credit)
Article 100-6 (Application for Earned Income Tax Credit)
Article 100-7
(Determination of Grants for Encouragement of Labor)
Article 100-8 (Refund, etc. of Grants for Encouragement of Labor)
Article
100-9 (Restriction on Refund of Grants for Encouragement of Labor)
Article 100-10 (Correction, etc. of Grants for Encouragement
of Labor)
RESTRICTION OF SPECIAL TAXATION ACT
8
Article 100-11 (Confirmation and Investigation of Applicant, etc.)
Article 100-12 (Inquiry about Financial Transaction Information)
Article 100-13 (Request for Data)
SECTION 10-3 Special Taxation for Partnership Firms
Article 100-14 (Definitions)
Article 100-15 (Scope of Application)
Article 100-16 (Duties of Partnership Firms and Partners to Pay Taxes)
Article 100-17 (Application for Eligibility for or Waiver
of Special taxation for Partnership
Firms)
Article 100-18 (Calculation and Allocation of Income, etc. of partnership Firm)
Article 100-19 (Transactions between Partnership
Firm and Its Partners)
Article 100-20 (Adjustment of Value of Equity Shares)
Article 100-21 (Transfer of Equity Shares in Partnership
Firms)
Article 100-22 (Distribution of Assets of Partnership Firms)
Article 100-23 (Reporting on Details of Calculation and Allocation
of Income of Partnership
Firms)
Article 100-24 (Withholding Taxes from Non-resident or Foreign corporation Partners)
Article 100-25 (Additional Tax)
Article 100-26 (Provisions Applicable Mutatis Mutandis)
SECTION 11 Special Taxation for Other Direct National Taxes
Article 101
(Special Case of Application of Additional Appraisal to Largest Shareholders,
etc. of Small or Medium Enterprises)
Article 102 (Tax Reduction or Exemption for Forest Development income)
Article 103 Deleted.
Article 104-5 (Tax Credit for Information Return)
Article 104-6 (Special Cases of Taxation with respect to Foreign Tax Amount Paid
Indirectly)
Article 104-7 (Special Cases of Taxation with respect to Urban Improvement Work
Association)
Article 104-8 (Tax Credit for Tax Return by Electronic Method)
Article 104-9 Deleted.
Article 104-11 (Special Taxation for Personnel Company)
Article 104-12 (Special Taxation of Gross Real Estate Tax for Service Business,
etc.)
Article 104-13 (Special Taxation of Gross Real Estate Tax for Confucian Schools and
Religious Organizations)
Article 104-14 (Tax Credit for Third Party Distribution Expense)
Article 104-15 (Special Taxation for Investment in Development
of Overseas Resources)
RESTRICTION OF SPECIAL TAXATION ACT
9
Article 104-16 (Special Taxation for Financial Soundness of Universities)
CHAPTER INDIRECT NATIONAL TAXES
Article 105 (Application of Zero Rating to Value-Added Tax)
Article 105-2 (Special Cases for Refund of Value-Added Tax on Machinery
and Materials
for Farming or Fishing Industry)
Article 106 (Exemption, etc. from Value-Added Tax)
Article 106-2 (Abatement or Exemption of Value-Added Tax, etc. on Petroleum Products
for Agriculture, Forestry, Fisheries, and Coastal Passenger Ships)
Article 106-3 (Special Taxation of Value-Added Tax on Gold Bullions)
Article 106-4 (Special Taxation on Payment of Value-Added Tax by Purchasers of
Gold-related Products)
Article 106-5 (Special Tax Credit for Constructive Input Supplies of Gold Scrap)
Article 106-6 (Submission of Statement of Transactions
of Gold Bullions, etc.)
Article 106-7 (Relief for Payable Amount of Value-Added Tax for General Taxicab Business
Operators)
Article 107 (Special Cases of Indirect Taxes on Foreign Business Operators, etc.)
Article 108 (Special Cases of Deduction of Input
Tax Amount of Value-Added Tax on
Recycled Waste Resources, etc.)
Article 108-2 (Special Cases of Deduction of Input Tax Amount of Value-Added Tax
on Operational Assets of High-Speed Railway)
Article 109 Deleted.
Article 111 (Exemption from Individual Consumption Tax or Traffic, Energy and
Environment Tax on Petroleum Products)
Article 111-2 (Special Cases for Refund of Traffic, Energy and Environment Tax and
Individual Consumption Tax Imposed on Fuel of
Compact Cars)
Article 111-3 (Exemption from Individual Consumption Tax, etc. on Taxi Fuel)
Articles 112 and 112-2 Deleted.
Article 114 (Exemption from Individual Consumption Tax and Liquor Tax on Goods Sold
to Military Personnel, etc.)
Article 115 (Exemption from Liquor Tax)
Article 116 (Exemption from Stamp Tax)
Article 117 (Exemption from Securities Transaction Tax)
Article 118 (Reduction of Customs Duties)
CHAPTER LOCAL TAXES
Article 119 (Exemption, etc. from Registration Tax)
Article 120 (Exemption, etc. from Acquisition Tax)
Article 120-2 Deleted.
10
CHAPTER V SPECIAL CASES OF TAXATION FOR FOREIGNER S
INVESTMENT, ETC.
Article 121-2 (Reduction of or Exemption from Corporate Tax, etc. for Foreigner s
Investment)
Article 121-3 (Exemption from Customs Duties, etc.)
Article 121-4 (Tax Reduction or Exemption for Capital Increase)
CHAPTER GENERAL
PROVISIONS
Article 1 (Purpose)
The purpose of this Act is to contribute to the sound development of national
economy by ensuring fair taxation and implementing
efficient tax policies
through prescribing the matters concerning special cases of taxation, such
as tax reduction or exemption,
excessive taxation, etc., along with matters
concerning restriction on such special cases.
Article 2 (Definitions)
(1) For the purposes of this Act, the definitions of the terms used herein
shall be as follows:
1. The term "national" means a resident under the Income Tax Act and
a domestic corporation under the Corporate Tax Act;
2. The term "taxable year" means a taxable period under the Income
Tax Act or a business year under the Corporate Tax Act;
3. The term "tax base return" means the final tax base return under
Articles 70 through 72, 74, and 110 of the Income Tax Act, and
the
tax base return under Article 60 of the Corporate Tax Act;
4. The term "gross income" means gross incomes under Article 24 of
the Income Tax Act, or revenues under Article 14 of the Corporate
Tax Act;
5. The term "deductible expenses" means necessary expenses under Article
27 of the Income Tax Act, or deductible expenses under Article
14
of the Corporate Tax Act;
6. The term "taxation carried forward" means that, where an individual
transfers his fixed assets, etc. used for the purposes of
business (hereafter
in this subparagraph referred to as the "fixed assets, etc. for a previous
business") to a corporation as investment
in kind, etc., an income tax
on such income as derived from the transfer under Article 94 of the
RESTRICTION OF SPECIAL TAXATION
ACT
11
Income Tax Act (hereinafter referred to as the "transfer income tax")
shall not be imposed on the individual transferring these
fixed assets,
etc., but the corporation acquiring such assets, etc. shall, if it is to transfer
these fixed assets, etc. used for
the purposes of the business concerned,
pay as the corporate tax an amount equivalent to the calculated transfer
income tax under
Article 104 of the same Act, which is calculated deeming
that no other assets had been transferred during the taxable period
whereto
belongs the date on which the individual transferred the fixed
assets, etc. for a previous business to such corporation;
7. The term "taxation deferment" means that, where any individual
transfers the fixed assets used for his business (hereafter referred
to
as the "fixed assets, etc. for the previous business" in this subparagraph)
in order to relocate his factory, etc. and acquires
the fixed assets used
for other business (hereafter referred to as the "fixed assets, etc. for
the new business" in this subparagraph)
in use of the transfer value,
the transfer income tax shall not be levied on the amount that is
calculated by the following formula
(in cases where the acquisition
value of the fixed assets, etc. for the new business exceeds the transfer
value of the fixed assets,
etc. for the previous business, the marginal
profit that accrues from the transfer of the fixed assets, etc. for the
previous business
shall be the ceiling; hereinafter referred to as the
"deferred amount of taxation") from among the marginal profit that
accrues
from the transfer of the fixed assets, etc. for the previous
business, but when the fixed assets, etc. for the new business are
transferred, an amount that is obtained by subtracting the deferred
amount of the taxation from the acquisition value of the fixed
assets,
etc. for the new business shall be deemed the acquisition value and
then the transfer income tax shall be levied thereon:
The marginal profit that accrues from the transfer of the fixed assets,
etc. for the previous business (the acquisition value of
the fixed
assets, etc. for the new business / the transfer value of the fixed
assets, etc. for the previous business).
8. The term "special taxation" means a tax reduction or exemption, such
as the application of special tax rates, reduction of or
exemption from
RESTRICTION OF SPECIAL TAXATION ACT
12
a tax amount, tax credits, income deduction, inclusion of reserves in
deductible expenses, etc. in cases where the specified conditions
are
satisfied, as well as an excessive taxation, such as inclusion in gross
income or non-inclusion in deductible expenses, etc.
for specific
purposes;
9. The term "Seoul Metropolitan area" means the Seoul Metropolitan
area provided for in subparagraph 1 of Article 2 of the Seoul
Metropolitan
Area Readjustment Planning Act; and
10. The term "over-concentration control zone of the Seoul Metropolitan
area" means the over-concentration control zone provided
for in Article
6 (1) 1 of the Seoul Metropolitan Area Readjustment Planning Act.
(2) Except as otherwise provided for in this Act,
the definitions of any
terms other than those provided for in paragraph (1) shall be subject
to the examples of the same terms
as used in such Acts as set forth in
Article 3 (1) 1 through 19.
(3) Except as specifically provided for in this Act, the classification of
types of business used in this Act shall be subject to
the Korea Standard
Industrial Classification publicly announced by the Commissioner of the
Korea National Statistical Office under
Article 22 of the Statistics Act:
Provided, That the types of business that become otherwise ineligible for
the special taxation
under this Act due to a change in the Korea Standard
Industrial Classification shall remain eligible for the special taxation
applicable
to the relevant types of business under the previous Korea
Standard Industrial Classification for the taxable year during which
such
change in the Korea Standards Industrial Classification occurs and the
immediately following taxable year.
(1) The special taxation shall be provided for in this Act, the Framework
Act on National Taxes, treaties, and the Acts falling
under any of the
following subparagraphs:
1. Income Tax Act;
RESTRICTION OF SPECIAL TAXATION ACT
13
2. Corporate Tax Act;
3. Inheritance Tax and Gift Tax Act;
4. Value-Added Tax Act;
5. Individual Consumption Tax Act;
6. Liquor Tax Act;
7. Stamp Tax Act;
8. Securities Transaction Tax Act;
9. National Tax Collection Act;
10. Traffic, Energy and Environment Tax Act;
11. Customs Act;
12. Local Tax Act;
13. Provisional Import Surtax Act;
14. Deleted; 15. Adjustment of International Taxes Act;
16. Act on Real Name Financial Transactions and Guarantee of Secrecy;
17. Deleted; 18. Education Tax Act;
19. Act on Special Rural Development Tax;
20. Deleted; 21. Inter-Korean Exchange and Cooperation Act;
22. Act on Lump Sum-Raising Savings of Farming and Fishing Households;
23. Act on Designation and Management of Free Trade Zones;
24. Special Act on the Establishment of Jeju Special Self-Governing Province
and the Development of Free International Cities (limited
to the taxes
of the Jeju Special Self-Governing Province); and
25. Gross Real Estate Tax Act.
(2) The additional penalty tax and the transfer income tax shall not be
included in the scope of
taxes to be reduced or exempted under this Act,
the Framework Act on National Taxes, treaties, and the Acts referred
to in each
subparagraph of paragraph (1), except as otherwise prescribed
in the relevant Acts or treaties.
SECTION 1 Special Cases of Taxation for Small or Medium
RESTRICTION OF SPECIAL TAXATION ACT
14
Enterprises
Article 4 Deleted. 1. Business assets specified by the Presidential Decree including machinery
and equipment (hereinafter referred to as "business assets");
2. Facilities for the point-of-sale data management system under the
Distribution Industry Development Act (hereinafter referred
to as
"facilities for the point-of-sale data management system"); and
3. Facilities used in the information protection system under subparagraph
4 of Article 2 of the Framework Act on Informatization
Promotion,
of which the depreciation period is two years or longer (hereinafter referred
to as "facilities for information protection
system").
(2) In cases where the investment as provided for in paragraph (1) is
made over two or more taxable years, the provisions
of paragraph (1)
may, in each taxable year in which such investment is made, apply to the
amount invested for the taxable year
concerned.
(3) Such matters as may be necessary for the calculation of invested amounts
under paragraph (2) shall be determined by the Presidential
Decree.
(4) A national who desires to be eligible for the application of the pro-
visions of paragraphs (1) and (2) shall make
an application for tax
credit under the conditions as prescribed by the Presidential Decree.
Article 5-2 (Special Taxation for
Supporting Project of Informatization
of Small or Medium Enterprises)
Where such small or medium enterprisers as prescribed by the Presidential
RESTRICTION OF SPECIAL TAXATION ACT
15
Decree invest the contribution, etc. for supporting projects of
informatization of the small or medium enterprises, which is paid
not later
than December 31, 2009 pursuant to Article 18 of the Technological
Renovation Promotion of Small and Medium Enterprise
Act, Article 19
of the Industrial Technology Innovation Promotion Act, and Article 34
(2) of the Framework Act on Informatization
Promotion, in any of the
following facilities, such contribution, etc. may be included in deductible
expenses by applying mutatis
mutandis the provisions of Article 32 of
the Income Tax Act and Article 36 of the Corporate Tax Act.
1. Computers, their peripheral devices, software, telecommunications
facilities and other tangible and intangible facilities used
for the
management of human and material resources of an enterprise including
information about purchasing, design, construction
works, production,
inventory, personnel and business information in an electrical format,
of which the depreciation period is two
years or longer (hereinafter
referred to as "facilities for enterprise resource planning");
2. Computers and their peripheral devices, software, telecommunications
facilities and other tangible and intangible facilities used
for demand
forecast, contract, providing services, selling merchandise, delivery,
settlement of payments, customer management or
such in an electronic
format, of which the depreciation period is two years or longer
(hereinafter referred to as "facilities for
electronic commerce"); and
3. Any facilities other than those under subparagraphs 1 and 2, but used
for informatization of an enterprise, as prescribed by the
Presidential
Decree.
[This Article Newly Inserted by Act No. 6538, Dec. 29, 2001]
Article 5-3 Deleted.
(1) A small or medium enterprise which is established in an area outside
the over-concentration control zone of the Seoul Metropolitan
area
(hereinafter referred to as the "small or medium start-up enterprise") and
a national who is designated as an operator of
a start-up business support
RESTRICTION OF SPECIAL TAXATION ACT
16
center under Article 6 (1) of the Support for Small and Medium Enterprise
Establishment Act, on or before December 31, 2009 shall
be allowed the
reduction of, or the exemption from, a tax amount equivalent to 50/100
of the income tax or corporate tax on incomes
derived from the business
concerned for the taxable year in which income has been derived for the
first time from such business
(where no income is derived from the business
concerned by the taxable year whereto belongs the date on which five
years have passed
since the beginning of the business, the taxable year
whereto belongs the date on which five years have passed) and also for
the
subsequent taxable years that will end within three years after the
beginning of the following taxable year.
8827, Dec. 31, 2007>
(3) The scope of the small or medium start-up enterprises and the small
or medium start-up venture enterprises shall include such
small or medium
enterprises as are engaged in manufacturing, mining, value-added
telecommunications, research and development,
scientific and
technological service, specialized design, broadcasting service under the
Broadcasting Act, broadcast program production,
engineering business as
determined by the Presidential Decree (hereinafter referred to as the
"engineering business"), data processing
and other business related to
computer services, distribution business as determined by the Presidential
Decree (hereinafter referred
to as the "distribution business"), movie industry
(limited to movie and video production business, service business related
to
movie and video production, and movie distribution business), public
performance industry (excluding independent artists), tourist
accommodation business, businesses of tourist-use facility as prescribed
by the Presidential Decree, and international conference
and amusement
facility under the Tourism Promotion Act, advertisement business, operation
business of welfare facility for the
aged under the Welfare of the Aged
Act, and the trade exhibition industry provided for in the Act on the
Establishment of Trading
Business Foundation, and private teaching
institutes that specialize in the training of vocational skills provided for
in the Act
on the Establishment and Operation of Private Teaching
Institutes and Extracurricular Lessons.
1. Where a previous business is succeeded to by a merger, division,
investment in kind, or an acquisition of business or where a
business
of the same type is carried on through a takeover or purchase of the assets
that have been used in a previous business:
Provided, That in cases
where the assets that are used for the previous business are taken
RESTRICTION OF SPECIAL TAXATION ACT
18
over or purchased to run the same type of business and the ratio of
the total value of the relevant assets to the total value of
business assets,
including lands, buildings and machinery, etc., which are determined
by the Presidential Decree, is not more than
50/100 and falls short
of the ratio that is determined by the Presidential Decree, such case
shall be excluded;
2. Where a new corporation is founded by converting a business run by
a resident into a corporation;
3. Where a business of the same type as the one before its closure is
carried on by starting business again after its closure; and
4. Where it is difficult to deem that a new business has been started
as it is the case with the expansion of the existing business
or addition
of another business line, etc.
(5) A national who desires to be eligible for the application of paragraphs
(1) and (2) shall make an application for tax reduction
or exemption
under the conditions as prescribed by the Presidential Decree.
Article 7 (Special Tax Reduction or Exemption for Small or Medium
Enterprises)
(1) Any of the small or medium enterprises which is engaged in a type
of business eligible for reduction or exemption under the
following
subparagraph 1 shall be allowed the reduction of, or the exemption from,
an amount equivalent to the tax amount computed
by applying the reduction
or exemption ratio under subparagraph 2 to the income tax or corporate
tax on incomes accruing from the
relevant business place for the taxable
year ending on or before December 31, 2008: Provided, That in cases where
the principle
office or the main office of any domestic corporation is located
in the Seoul Metropolitan area, all of its business places shall
be deemed
located in the Seoul Metropolitan area and the tax reduction or exemption
ratio referred to in subparagraph 2 shall apply
thereto:
1. Type of business eligible for tax reduction or exemption:
(a) Manufacturing business;
RESTRICTION OF SPECIAL TAXATION ACT
19
(b) Mining business;
(c) Construction business;
(d) Distribution business;
(e) Passenger transportation service that belongs to transportation
industry;
(f) Fishery business;
(g) Wholesale business;
(h) Retail business;
(i) Telecommunications business;
(j) Research and development business;
(k) Broadcasting business;
(l) Engineering business;
(m) Data processing and other business related to computer services;
(n) Crop growing business;
(o) Livestock industry;
(p) Business of operating a medical institution under the Medical
Service Act (excluding clinics, dental clinics and herb clinics;
hereafter
referred to as the "medical service business" in this Article);
(q) Business of operating an automobile maintenance shop
as determined
by the Presidential Decree (hereafter referred to as the "automobile
maintenance service business" in this Article);
(r) Wastes disposal service under the Wastes Control Act (including
the business of recycling wastes after making a report thereon
required under Article 46 of the same Act);
(s) Waste water treatment service under the Water Quality and
Ecosystem Conservation Act;
(t) Scientific and technological service;
(u) Specialized design business;
(v) Packing and filling business;
(w) Movie industry (limited to movie and video production, services
related to movie and video production, and movie distribution);
(x) Public performance service (excluding independent artists);
(y) News provision service;
(z) Tourist business under the Tourism Promotion Act (excluding
RESTRICTION OF SPECIAL TAXATION ACT
20
casinos, tourist amusement restaurants, amusement restaurants
exclusively for foreigners; hereafter referred to as the "tourist
business" in this Article);
(za) Business of operating a welfare facility for the aged under the Welfare
of the Aged Act;
(zb) Order-based production business under OEM system as
determined by the Presidential Decree;
(zc) Construction wastes treatment business under the Construction
Wastes Recycling Promotion Act;
(zd) Ship management business under the Marine Transportation Act;
(ze) Excreta collection and conveyance business under Article
45 of
the Sewerage Act;
(zf) Private teaching institutes specialized in the training of vocational
skill, which are prescribed by the Presidential Decree;
(zg) Trade exhibition industry under the Act on the Establishment of
Trading Business Foundation;
(zh)Advertisement business; and
(zi) Soil purifying business that is prescribed by the Presidential Decree;
and
2. Tax reduction or exemption ratio:
(a) The business place where a small enterprise prescribed by the
Presidential Decree (hereafter
referred to as a "small enterprise"
in this Article) runs the wholesale business, the retail business,
the medical service business,
the automobile maintenance service
business and the tourist service business (hereafter referred to
as the "wholesale business,
etc." in this Article): 10/100;
(b) The business place where a small enterprise runs, with the exception
of the wholesale business,
etc., the type of business subject to the
tax reduction or exemption referred to in subparagraph 1 in the
Seoul Metropolitan area:
20/100;
(c) The business place where a small enterprise runs, with the exception
of the wholesale business, etc., the type of business subject
to
the tax reduction or exemption referred to in subparagraph 1 in
RESTRICTION OF SPECIAL TAXATION ACT
21
an area other than the Seoul Metropolitan area: 30/100;
(d) The business place where a medium enterprise (hereafter referred
to
as a "medium enterprise" in this Article) other than small
enterprises, runs the wholesale business, etc. in an area other than
the Seoul Metropolitan area: 5/100;
(e) The business place where a medium enterprise runs the
knowledge-based business that is prescribed by the Presidential
Decree
in the Seoul Metropolitan area: 10/100; and
(f) The business place where a medium enterprise runs, with the
exception of the wholesale
business, etc., the type of business subject
to the tax reduction or exemption referred to in subparagraph 1
in an area other than
the Seoul Metropolitan area: 15/100.
(2) A national who desires to be eligible for the application of paragraph
(1) shall make
an application for tax reduction or exemption under the
conditions as prescribed by the Presidential Decree.
Article 7-2 (Tax Credit
for Improving Enterprise's Bill System)
(1) In cases where the amount (hereafter in this Article referred to as
the "payment amount
including bill of exchange, etc.") falling under any
of the following subparagraphs is included in the purchase price (including
the purchase price that is paid by any national who runs his enterprise
that is not a small or medium enterprise to any other small
or medium enterprise
in use of the network loan system; hereafter the same shall apply in this
Article) that is paid by any national
who runs the small or medium enterprise
to any other small or medium enterprise on or before December 31, 2008,
an amount that
is computed in accordance with paragraph (2) shall be
deducted from the income tax (limited to the income tax on the income
accruing
from the business) or the corporate tax: Provided, That if the
deductible amount is in excess of 10/100 of the income tax or the
corporate
tax for the relevant taxable year, the ceiling of such deductible amount
shall be 10/100:
1. The amount that is settled by means of bill of exchange or a written
request for the collection of sale proceeds;
2. The amount that is spent by an exclusive-use card for corporate purchase,
on which an agreement is concluded to the effect that
the time limit
RESTRICTION OF SPECIAL TAXATION ACT
22
for the payment of the purchase price to the selling enterprise is within
60 days from the date on which the tax invoice, etc. (referring
to the
tax invoice, the account statement and the receipt provided for in the
Value-Added Tax Act, the Income Tax Act and the Corporate
Tax Act;
hereafter in this paragraph the same shall apply) on the relevant
transaction is prepared and a credit card business operator
is not entitled
to exercise his right to claim its repayment against the selling enterprise;
3. The amount that is paid by making use of a loan against security
of credit sales claims, on which an agreement is concluded to
the effect
that the time limit for repayment of loans extended to the purchasing
enterprise is within 60 days from the date on
which the tax invoice,
etc. is prepared and the relevant financial institution cannot exercise
the right to claim its repayment
against the selling enterprise;
4. The amount that is paid by making use of the purchase loan system,
on which an agreement is concluded to the effect that the time
limit
for the price settlement by the purchasing enterprise is within 60 days
from the date on which the tax invoice, etc. is prepared
and the relevant
financial institution cannot exercise the right to claim the repayment
against the selling enterprise; and
5. The amount (limited to the amount loaned to the purchasing enterprise)
that is paid by making use of the network loan system,
on which an
agreement is concluded to the effect that the time limit for the price
settlement by the purchasing enterprise is within
60 days from the
date on which the tax invoice, etc. is prepared and the relevant financial
institution exercises the right to
claim the repayment against the selling
enterprise prior to the date on which the tax invoice, etc. is prepared
and the relevant
financial institution exercises the right to claim the
repayment against the purchasing enterprise after the date on which
the
tax invoice, etc. is prepared.
(2) The amount that is deductible under paragraph (1) shall be an amount
obtained by adding the amount referred to in subparagraph
1 to the
amount referred to in subparagraph 2 (if the relevant amount is a negative
figure, such amount shall be deemed a zero):
23
1. [The payment amount including bill of exchange, etc. for which the
payment deadline, the repayment deadline or the time limit
for the
price settlement is within 30 days from the date on which the tax
invoice, etc. is prepared the amount of promissory note
that is settle d
to pay the purchase price (limited to an amount that is smaller than
or the same as the payment amount including
bill of exchange, etc.,
for which the payment deadline, the repayment deadline or the time
limit for the price settlement is within
30 days from the date on which
the tax invoice, etc. is prepared)] 4/1,000 (3/1,000 in the case of
the purchase price that is paid
by any national who runs an enterprise
that is not a small or medium enterprise to any small or medium
enterprise in use of the
network loan system; and
2. [The payment amount including bill of exchange, etc. for which the
payment deadline, the repayment deadline or the time limit
for the
price settlement is longer than 30 to within 60 days from the date
on which the tax invoice, etc. is prepared the amount
of promissory
note that is settled to pay the purchase price (limited to an amount
that remains after being subtracted in subparagraph
1)] 15/10,000.
(3) The definitions of terms used in paragraphs (1) and (2) shall be as
follows:
1. The term "purchase price" means the amount paid by a purchasing
enterprise for the goods supplied or the services provided by
a selling
enterprise in connection with its ordinary business activities consistent
with its business objectives;
2. The term "sale proceeds" means the amount received by a selling
enterprise for the goods supplied or the services provided to
a purchasing
enterprise in connection with its ordinary business activities consistent
with its business objectives;
3. The term "bill of exchange" means a bill issued, in the form of payable
at sight, by a selling enterprise for getting the sale
proceeds paid, by
designating a purchasing enterprise as the payer and the sale proceeds
as the payable amount, pursuant to the
terms and forms set forth
by the Governor of the Bank of Korea in connection with the loans
RESTRICTION OF SPECIAL TAXATION ACT
24
for financing business purchases;
4. The term "written request for collection of sale proceeds" means a
document prepared in electronic forms and transmitted by a
selling
enterprise to his bank for getting the sale proceeds paid pursuant to
the terms and forms set forth by the Governor of
the Bank of Korea
in connection with the loans for financing business purchases;
5. The term "exclusive-use card for business purchase" means a credit
card or debit card received by a purchasing enterprise from
a credit
card company under the Specialized Credit Financial Business Act in
order to pay the purchase price, which is not usable
at any general
credit card member shops and is issued for the only purpose of paying
the purchase price to the relevant selling
enterprise under the contract
among the purchasing enterprise, the selling enterprise and the credit
card company;
6. The term "loan against security of credit sales claims" means a loan
extended to a selling enterprise by a financial institution
on the security
of the credit sales claims to a purchasing enterprise in order to receive
a payment of sale proceeds, and redeemed
by the purchasing enterprise
for its purchase price, under the conditions as determined by the Governor
of the Bank of Korea;
7. The term "purchase loan system" means the settlement method by
which any purchasing enterprise enters into a loan ceiling agreement
with any financial institution under which such purchasing enterprise
settles the purchase price for selling enterprises using
the amount of
loans extended by such financial institution by making use of the data
processing system and the purchasing enterprise
repays loans to the
financial institution on or before the date of maturity; and
8. The term "network loan system" means the settlement method by which
any selling enterprise enters into a loan ceiling agreement
with any
financial institution and such selling enterprise gets loans from such
financial institution based on the order book of
the purchasing enterprise
and the purchasing enterprise repays loans to such financial institution
by means of electronic settlement.
(4) A national who desires to be eligible for the application of paragraphs
RESTRICTION OF SPECIAL TAXATION ACT
25
(1) and (2) shall file an application for tax credit under the conditions
as prescribed by the Presidential Decree.
(5) Necessary matters concerning order books and the procedures for
furnishing information pertaining to loans, etc. among purchasing
enterprises, financial institutions and selling enterprises in the application
of paragraph (1) 5 shall be prescribed by the Presidential
Decree.
[This Article Newly Inserted by Act No. 6273, Oct. 21, 2000]
Article 7-3 Deleted.
(1) In cases where a national donates a facility prescribed by the Presidential
Decree including an automation facility, which has
been used for his own
business, to a small or medium enterprise or transfers such facility at
any price lower than its fair market
price under Article 52 (2) of the Corporate
Tax Act (hereafter referred to as "market price" in this Article) on or
before December
31, 2009, the amount of the following subparagraphs shall
be included in his deductible expenses, in calculating his income for
the
relevant taxable year: 1. If he donates such facility: The market price of the facility donated;
or
2. If he transfers such facility at any price lower than the market price:
The value calculated by subtracting the transfer price
from the market
price of the asset transferred (or the book value, if the market price
is lower than the book value).
(2) The amount equivalent to the value of a facility donated to a small
or medium enterprise under paragraph (1) may be included
in deductible
expenses, applying Article 32 of the Income Tax Act and Article 36 of
the Corporate Tax Act mutatis mutandis.
(3) The requirements for small or medium enterprises subject to the
application of paragraphs (1) and (2) and other necessary matters
shall
be prescribed by the Presidential Decree.
[This Article Newly Inserted by Act No. 8146, Dec. 30, 2006]
RESTRICTION OF SPECIAL TAXATION ACT
26
Article 8-2 Deleted.
Article 9 Deleted.
1. For a small or medium enterprise: The chosen amount from the
amounts provided for in the following items:
(a) Where research and manpower development expenses incurred for
the relevant taxable year exceed the annual average of such expenses
paid during four preceding years retroactively from the date on which
the taxable year concerned begins, an amount equivalent to
50/100
of such excessive amount; and
(b) An amount computed by multiplying research and manpower
development expenses incurred for the relevant taxable year by
15/100;
and
2. For a national other than those under subparagraph 1: The amount
computed by adding up the amounts under items (a) and (b) below:
Provided, That if the ratio of research and manpower development
expenses to the revenue amount for the relevant taxable year (referring
RESTRICTION OF SPECIAL TAXATION ACT
27
to the sales calculated according to the corporate accounting standards
under Article 43 of the Corporate Tax Act; hereafter the
same shall
apply in this Article) is higher than or equivalent to the ratio of research
and manpower development expenses to the
revenue amount for the
preceding taxable year, the amount chosen from the total amount of
items (a) and (b) and the amount of item
(c) shall be deducted:
(a) Where research and manpower development expenses prescribed
by the Presidential Decree entrusted to
a university or collage, or
a small or medium enterprise (hereinafter referred to as "research
and manpower development expenses
entrusted to a small or medium
enterprise, etc."), which are incurred for the relevant taxable year,
exceed the annual average
of such expenses paid during four preceding
years retroactively from the date on which the taxable year concerned
begins, an amount
equivalent to 50/100 of such excessive amount;
(b) Where research and manpower development expenses, other than
the research and
manpower development expenses entrusted to a
small or medium enterprise, etc., which are incurred for the relevant
taxable year,
exceed the annual average of such research and
manpower development expenses, other than the research and
manpower development
expenses entrusted to a small or medium
enterprise, etc., which are paid during four preceding years
retroactively from the date
on which the taxable year concerned
begins, an amount equivalent to 40/100 of such excessive amount;
and
(c) The amount calculated by multiplying research and manpower
development expenses incurred for the relevant taxable year by the
ratio (which shall not exceed 6/100) calculated with the following
formula:
3/100 + Ratio of research and manpower development expenses to
the revenue amount for the relevant taxable year 1/2
(2) The classification
and calculation of the annual average of research and
manpower development expenses incurred during four preceding years
under
paragraph (1) 1 and 2 and other necessary matters shall be prescribed
by the Presidential Decree.
28
(3) A national who desires to be eligible for the application of paragraph
(1) shall make an application for tax credit under the
conditions as prescribed
by the Presidential Decree.
Article 10-2 (Special Taxation for Contribution, etc. for Research and
Development)
(1) In cases where a national is paid a contribution and other assets
(hereafter referred to as the "research and development contribution,
etc."
in this Article), not later than December 31, 2009, for the purposes of
conducting research and development, etc. in accordance
with the Technology
Development Promotion Act and other Acts prescribed by the Presidential
Decree and does the account of the
research and development contribution,
etc. by classification in such a manner as prescribed by the Presidential
Decree, he may
choose not to include an amount equivalent to the research
and development contribution, etc. in the gross income, in calculating
his
income for the relevant taxable year.
(2) The amount not included in the gross income pursuant to paragraph (1)
shall be included in the gross income according to the
methods as set
forth in the following subparagraphs:
1. Where the research and development contribution, etc. is disbursed
for meeting the research and development expenses concerned:
The
method of including an amount equivalent to the disbursed amount
in the gross income, in calculating the income for the taxable
year
whereto belongs the date of such disbursement; and
2. Where the research and development contribution, etc. is disbursed
for acquiring assets used for the research and development
concerned:
The method of including an amount equivalent to the disbursed amount
in the gross income in such a manner as prescribed
by the Presidential
Decree.
(3) Where a national who has not included an amount equivalent to the
research and development contribution, etc. in the gross income
pursuant
to paragraph (1) spends the research and development contribution, etc.
for other purposes than the research and development
or his business
is discontinued or dissolved before the research and development
contribution, etc. is spent on the research and
development, the amount
not spent shall be included in the gross income, in calculating the income
RESTRICTION OF SPECIAL TAXATION
ACT
29
for the taxable year whereto belongs the date on which such a cause occurs:
Provided, That this shall not include the cases where
a corporation, etc.
that is newly incorporated after a merger or division takes over the amount,
and the amount shall be deemed
not to be included by the said corporation,
etc. in the gross income pursuant to paragraph (1).
(4) With respect to the amount
to be included in the gross income pursuant
to paragraph (3), the latter part of Article 33 (3) shall apply mutatis
mutandis.
(5) In the application of paragraphs (1) through (4), the submission of
a specification of the non-inclusion of contributions in
the gross income
and other necessary matters shall be prescribed by the Presidential Decree.
[This Article Newly Inserted by Act
No. 8146, Dec. 30, 2006]
Article 11 (Tax Credit for Investment in Facilities for Research and Man-
power Development)
(1) In case where a national makes investment in facilities for research
and manpower development or facilities for the commercialization
of new
technology (excluding any investment in used facilities) not later than
December 31, 2009, an amount equivalent to 7/100
of such investment
amount shall be allowed to be deducted from his income tax (limited to
the income tax on business income) or
corporate tax for the taxable year
whereto belongs the date on which such investment has been completed.
1. Facilities for research or experimentation as determined by the
Presidential Decree;
2. Facilities for vocational training as determined by the Presidential
Decree; and
3. Business assets for the commercialization of such new technology as
determined by the Presidential Decree.
(3) In case where the investment under paragraph (1) is made over two
or more taxable years, the provision of paragraph (1) may
apply to each
amount invested for each taxable year wherein such investment is made.
(4) Such matters as may be necessary for computing
the amount of
RESTRICTION OF SPECIAL TAXATION ACT
30
investment under paragraph (3) shall be determined by the Presidential
Decree.
(5) A national who desires to be eligible for the application of paragraph
(1) or (3) shall make an application for tax credit under
the conditions
as prescribed by the Presidential Decree.
Article 12 (Special Taxation on Income from Transfer of Technology, etc.)
(1) Deleted.
(2) In case where any national obtains any patent right, any utility model
right, any secret know-how that is prescribed by the
Presidential Decree
or any technology that is also prescribed by the Presidential Decree
(hereafter referred to as the "patent
right, etc." in this Article) on or
before December 31, 2009 from another national who has established,
registered and held such
patent right, etc. after having researched and
developed them (excluding a case where such patent right, etc. is obtained
from
a person in a special relationship who is prescribed by the Presidential
Decree), an amount equivalent to 3/100 of the value of
its acquisition
(7/100 in the case of a small or medium enterprise) shall be allowed to
be deducted from his income tax (limited
to the income tax on business
income) or corporate tax for the taxable year concerned. In this case, the
deductible amount may
not exceed 10/100 of the income tax or corporate
tax for the taxable year concerned.
(3) A national who desires to be eligible for the application of paragraph
(2) shall file an application for the tax credit under
the conditions as
prescribed by the Presidential Decree.
31
income tax shall be reduced or exempted in accordance with paragraphs
(2) and (3):
1. A high-tech enterprise designated not later than December 31, 2009
pursuant to subparagraph 3 of Article 2 of the Special Act
on the
Fosterage of Daedeok Special Research and Development Zone, etc.;
and
2. A research institute-run enterprise established with approval not later
than December 31, 2009 pursuant to Article 9 (1) of the
Special Act
on the Fosterage of Daedeok Special Research and Development Zone,
etc.
(2) With respect to the income generated from the business subject to reduction
or exemption operated by an enterprise which meets
the requirements
of paragraph (1), an amount equivalent to 100/100 of the corporate tax
or the income tax for the taxable year
ending within 3 years after the
beginning of the taxable year in which the first income has been generated
from the said business
(if no income has been derived from the said business
not later than the taxable year whereto belongs the date on which five
years
have passed since such designation or approval, it refers to the taxable
year whereto belongs the date on which the five years have
passed), and
an amount equivalent to 50/100 of the corporate tax or the income tax
for the taxable year ending within 2 years thereafter,
shall be reduced
or exempted, respectively.
(3) Any person who intends to be eligible for the application of paragraph
(2) shall file an application for reduction or exemption
under the conditions
as prescribed by the Presidential Decree.
[This Article Newly Inserted by Act No. 8146, Dec. 30, 2006]
Article 13 (Non-Taxation on Gains from Stock Transfer by Small or Medium
Start-up Business Investment Company, etc.)
(1) The corporate tax shall not be imposed on marginal profits derived
from the transfer of stocks or equities falling under any
one of the following
subparagraphs by any small or medium start-up business investment
company provided for in the Support for
Small and Medium Enterprise
Establishment Act (hereinafter referred to as the "small or medium start-up
business investment company"),
any limited-liability company provided
for in the Commercial Act pursuant to the provisions of Article 4-3 (1) 3
of the Act on
Special Measures for the Promotion of Venture Businesses
(hereinafter referred to as the "venture enterprise investment
RESTRICTION
OF SPECIAL TAXATION ACT
32
limited-liability company") or any new technology project financing
company under the Specialized Credit Financial business Act
(hereinafter
referred to as the "new technology project financing company"):
1. Stocks or equities that are acquired by any small or medium start-up
business investment company through its investment in a founder
under
the Support for Small and Medium Enterprise Establishment Act
(hereinafter referred to as a "founder") or in a venture business
not
later than December 31, 2009;
2. Stocks or equities that are acquired by a new technology project financing
company through its investment in a new technology
business operator
under the Korea Technology Credit Guarantee Fund Act (hereinafter
referred to as a "new technology business operator")
or in a venture
business not later than December 31, 2009; and
3. Stocks or equities that are acquired by any small or medium start-up
business investment company, any venture enterprise investment
limited-liability company or any new technology project financing
company in return for its or his investment in a founder, a new
technology
business operator, or a venture business not later than December 31,
2009 through an association falling under any one
of the following
items:
(a) Small or medium start-up business investment association under
the Support for Small and Medium Enterprise Establishment Act
(hereinafter referred to as the "small or medium start-up business
investment association");
(b) Korea venture business investment association under Article 4-3
of the Act on Special Measures for the Promotion of Venture
businesses
(hereinafter referred to as the "Korea venture business investment
association");
(c) New technology business investment association under the
specialized Credit Financial Business Act (hereinafter referred to
as the "new technology business investment association"); and
(d) Component and material-specialized business investment association
under the Act on Special Measures for the Promotion of specialized
Enterprises, etc. for Component and Material (hereinafter referred
RESTRICTION OF SPECIAL TAXATION ACT
33
to as the "component and material-specialized business investment
association").
(2) In applying the provisions of paragraph (1), an investment shall be
made by the following methods either in the form of a direct
acquisition
of the stocks or equities of a founder, a new technology business operator,
or a venture business by any small or medium
start-up business investment
company, any venture enterprise investment limited-liability company or
any new technology project
financing company or in the form of an acquisition
thereof through a small or medium start-up business investment
association,
the Korea venture business investment association, a new
technology business investment association, or a component or
materials-specialized
business investment association, but an investment
shall not be made by purchase of stocks or equities owned by other persons:
1. Method of paying a share capital at the time of the incorporation of
the enterprise concerned;
2. Method of paying subscription money for new shares issued by the
enterprise concerned for the purpose of the increase of its capital
within
seven years from its incorporation;
3. Method of acquiring stocks or equities of the enterprise concerned at
the time of the capitalization of its surplus within seven
years from
its incorporation; and
4. Method of acquiring stocks or equities of the enterprise concerned
at the time of the conversion of its liabilities into capital
within seven
years from its incorporation.
(3) The corporate tax shall not be imposed on any dividend income which
any founder, any new technology business operator or any
venture business
pays to any small or medium start-up business investment company, any
venture enterprise investment limited-liability
company, any new
technology project financing company not later than December 31, 2009
in consideration for its investment pursuant
to paragraph (1).
(4) Such matters as may be necessary for computing transfer marginal
profits and dividend income as provided in paragraphs (1) through
(3)
shall be determined by the Presidential Decree.
6297, Dec. 29, 2000>
Article 14 (Special Taxation for Investments in Small or Medium start-up
Business Investment Company, etc.)
(1) The provisions of Article 94 (1) 3 of the Income Tax Act shall not
apply to the transfer of stocks or equities falling under
any of the following
subparagraphs (with respect to the stocks or equities falling under
subparagraphs 1, 2, 2-2, 3, 4 and 6, it
shall be limited to the acquisition
thereof by the method falling under any of the subparagraphs of Article
13 (2)): Provided,
That in the case of acquisition of the stocks or equities
falling under subparagraphs 1, 2, 2-2, 3, 4, and 6, this shall not apply
to the acquisition by purchase of such stocks or equities owned by other
persons: 1. Stocks or equities acquired by investing in a small or medium startup
business investment company or a specialized credit financing
company
that has registered only as the new technology project financing company
under Article 3 (2) of the Specialized Credit
Financial Business Act;
2. Stocks or equities acquired by a small or medium start-up business
investment association through its investment in a founder
or a venture
business;
2-2. Stocks or equities acquired by the Korea venture business investment
association through its investment in a founder or a venture
business;
3. Stocks or equities acquired by a new technology business investment
association through its investment in a new technology business
operator
or a venture business;
4. Stocks or equities as determined by the Presidential Decree, which are
acquired by investing in a venture business (including
cases of
acquisition by investing in a venture business through an association
under Article 13 of the Act on Special Measures
for the Promotion
of Venture Businesses);
5. Deleted; 6. Stocks or equities acquired by a component and materials-specialized
business investment association through its investment in
a founder,
a new technology business operator or a venture business; and
7. Stocks of venture businesses traded by the method of subparagraph
1 (b) of Article 3 of the Securities Transaction Tax Act (limited
to
RESTRICTION OF SPECIAL TAXATION ACT
35
those transferred by the persons who are not the large stockholders under
Article 94 (1) 3 (a) of the Income Tax Act).
(2) In cases where an institutional investor prescribed by the Presidential
Decree acquires stocks or equities not later than December
31, 2009, by
investing in a founder, a new technology business operator, a venture
business, or an enterprise subject to restructuring
under Article 14 (4) of
the Industrial Development Act (hereinafter referred to as an "enterprise
subject to restructuring") through
a small or medium start-up business
investment association, the Korea venture business investment association,
a new technology
business investment association, an enterprise
restructuring association under Article 15 of the Industrial Development
Act (hereinafter
referred to as a "corporate restructuring association"),
or a component and materials-specialized business investment association,
and assigns such stocks or equities to other persons, the corporate tax
shall not be imposed on any income derived from the assignment
of such
stocks or equities.
(3) Deleted.
(4) With respect to such income as falling under any of the following
subparagraphs, the association concerned shall withhold the
income tax
from such income when it pays such income to its members or partners:
1. Dividend income derived by a small or medium start-up business
investment association from its investment in a founder or a venture
business;
1-2. Dividend income derived by the Korea venture business investment
association from its investment in a founder or a venture
business;
2. Dividend income derived by a new technology business investment
association from its investment in a new technology business operator
or a venture business;
3. Dividend income derived by a corporate restructuring association
from its investment in an enterprise subject to restructuring;
and
4. Dividend income derived by a component and materials-specialized
business investment association from its investment in a founder,
a
new technology business operator, or a venture business.
RESTRICTION OF SPECIAL TAXATION ACT
36
(5) With respect to such income as attributable to a small or medium
start-up business investment association, the Korea venture
business
investment association, a new technology business investment association,
a corporate restructuring association, or a
component and
materials-specialized business investment association, which falls under
any subparagraphs of Article 16 (1) of the
Income Tax Act or Article 17
(1) 5 of the same Act, the association concerned shall withhold the income
tax or corporate tax from
such income when it pays such income to its members
or partners, notwithstanding the Income Tax Act and the Corporate Tax
Act.
(6) In the case of the income falling under paragraphs (4) and (5), the
gross income less expenses disbursed by the association
concerned (limited
to the expenses relative to gross income) shall be treated as the interest
income or dividend income, notwithstanding
the provisions of Article 16 (2)
of the Income Tax Act and the main sentence of Article 17 (3) of the
same Act.
(7) The provisions of paragraphs (4) through (6) shall apply only to the
income derived until December 31, 2009.
(1) In cases where a domestic corporation prescribed by the Presidential
Decree which is a founder, a new technology business operator,
a venture
business, or a component and materials-specialized enterprise under
subparagraph 2 of Article 2 of the Act on Special
Measures for the Promotion
of Specialized Enterprises, etc. for Component and Material (hereinafter
referred to as a "component
and materials-specialized enterprise") or a
stock-listed corporation or a KOSDAQ-listed corporation under the
Securities and Exchange
Act which meets such requirements as prescribed
by the Presidential Decree (hereafter referred to as the "start-up
corporation,
etc." in this Article) gives stock options to its employees (in
the case of a venture business and a component and materials-specialized
enterprise, such persons as prescribed by the Presidential Decree shall
RESTRICTION OF SPECIAL TAXATION ACT
37
be included; hereafter referred to as the "employees, etc." in this Article)
and allows them to exercise the stock options to transfer
the stocks concerned
at lower prices than their market prices, the said corporation shall not
be subject to the application of
the repudiation of wrongful calculation,
notwithstanding the provisions of Article 52 of the Corporate Tax Act.
1. A start-up corporation, etc. shall agree with the employees, etc. concerned
on the quantity of stock options, purchase price,
those eligible therefor,
and period, etc. with resolution of the general meeting of shareholders
or the board of directors before
giving such stock options;
2. The purchase price of the stocks under subparagraph 1 shall be equal
to or higher than such price as prescribed by the Presidential
Decree;
3. Stock options under subparagraph 1 shall not be transferable to other
persons;
4. Stock options shall be exercised after the elapse of two years from
the date on which they were given: Provided, That, in the
case of
an employee of a start-up corporation, etc., such stock options shall
be exercised after working for not less than two
years from the date
on which they were given, unless there is any such inevitable cause
as prescribed by the Presidential Decree,
such as death;
5. A start-up corporation, etc. shall give stock options to the same employee,
etc. within the limits of 10/100 (in the case of a
venture business,
the rate prescribed by the Presidential Decree within the limits of
20/100) of the total number of outstanding
stocks; and
6. Deleted.
(4) The provisions of paragraphs (1) and (2) shall also apply to the cases
where the employees, etc. who were granted stock options
do not actually
purchase the mutually agreed stocks during the mutually agreed period
and instead receive, in cash or stocks issued
by the start-up corporation,
etc., the difference between the actual purchase price and the market
value of such stocks (referring
to the difference when the purchase price
RESTRICTION OF SPECIAL TAXATION ACT
38
of the mutually agreed stocks is lower than their market value).
(6) In applying paragraphs (1), (2) and (4), the scope of employees, calculation
of the market value of stocks, and other necessary
matters shall be prescribed
by the Presidential Decree.
Article 16 (Income Deduction for Contribution, etc. to Small or Medium
Start-up Business Investment Association)
(1) In cases where a resident makes a contribution or investment falling
under any of the following subparagraphs, an amount (not
exceeding 50/100
of the global income amount for the taxable year concerned) equivalent
to 10/100 of the amount of contribution
or investment that is made not
later than December 31, 2008 shall be deducted from his global income
for a taxable year he chooses
from the taxable year whereto belongs the
date of such contribution or investment till the taxable year whereto belongs
the date
on which two years have passed since the contribution or
investment: Provided, That this shall not apply in cases where he makes
contribution or investment in the manner of taking over other persons'
contribution shares, investors' equities, or beneficiary
certificates:
1. Where he contributes to a small or medium start-up business investment
association, the Korea venture business investment association,
a new
technology business investment association or a component and
materials-specialized business investment association;
2. Where he invests in beneficiary certificates issued by a venture business
investment trust determined by the Presidential Decree
(hereafter referred
to as the "venture business investment trust" in this Article);
3. Where he invests the amount that was contributed to an association
under Article 13 of the Act on Special Measures for the Promotion
of Venture Businesses, in a venture business under the conditions as
prescribed by the Presidential Decree; and
4. Where he invests in a venture business under the Act on Special Measures
for the Promotion of Venture Businesses.
(2) In cases where a resident to whom income deduction was allowed
RESTRICTION OF SPECIAL TAXATION ACT
39
under the main sentence of paragraph (1) falls under any of the following
subparagraphs prior to the elapse of 5 years from the
date of contribution
or investment, the head of tax office having jurisdiction over the area
of his residence or the withholding
agent shall additionally collect an amount
of tax on the portion of income deduction that was allowed to the resident
under the
conditions as prescribed by the Presidential Decree: Provided,
That this shall not apply to the death of a contributor or investor
or any
other case arising from such causes as determined by the Presidential
Decree:
1. Where he transfers or collects his contribution shares as provided for
in paragraph (1) 1;
2. Where he transfers or resells beneficiary certificates issued by a venture
business investment trust as provided for in paragraph
(1) 2; and
3. Where he transfers or collects contribution shares or investor's equities
as provided for in paragraph (1) 3 and 4.
(3) Deleted.
(4) In applying the provisions of paragraphs (1) and (2), the limits and
calculation of deductible amounts, application for income
deduction, and
other necessary matters shall be prescribed by the Presidential Decree.
Article 17 Deleted.
40
where the date of delivery is prior to December 31, 2009) on a contract
for the introduction of such technologies.
(3) Anyone who desires to be eligible for the application of paragraph (1)
or (2) shall file an application for tax exemption under
the conditions
as prescribed by the Presidential Decree.
Article 18-2 (Special Taxation for Foreign Workers)
(1) Foreign executives or employees (excluding laborers hired on daily
basis;
hereinafter referred to as the "foreign workers") shall be eligible
for an exemption from income tax on an amount equivalent to
30/100
of their gross pay referred to in Article 20 (2) of the Income Tax Act which
is derived by performing their services in
Korea not later than December
31, 2009.
Article 20 (Special Taxation for Introduction of Public Loans)
(1) Taxes to be borne by a lender under subparagraph 10 of Article
2
of the Introduction and Management of Public Loans Act (hereafter in
this Article referred to as a "lender") in direct connection
with the
RESTRICTION OF SPECIAL TAXATION ACT
41
inducement of public loans under subparagraph 6 of Article 2 of said Act
(hereafter in this Article referred to as the "public loans")
shall be abated
or exempted under the conditions as stipulated by a public loan agreement
under subparagraph 7 of Article 2 of
said Act (hereafter in this Article
referred to as the "public loan agreement").
(2) The income tax or corporate tax on royalties or service fees paid to
a foreigner in connection with the inducement of a public
loan shall be
abated or exempted under such terms and conditions as prescribed by
the relevant public loan agreement.
(3) The tax abatement or exemption under paragraphs (1) and (2) may
be denied if so requested by a lender or technology licensor.
Article 21 (Exemption from Corporate Tax, etc. on Interest Income, etc.
from International Financial Transactions)
(1) A person who is paid an income falling under any of the following
subparagraphs (excluding residents and domestic corporations)
shall be
exempted from the income or corporate tax:
1. Interest and commission on the foreign currency bonds issued by the
State, local governments, or domestic corporations;
2. Interest and commission paid on the foreign currency liabilities
redeemable in foreign currency, which a foreign exchange business
handling institution under the Foreign Exchange Transactions Act
borrows from a foreign financial institution under such conditions
as
prescribed by the said Act; and
3. Interest and commission paid on the foreign currency bills or foreign
currency deposit certificates issued or sold overseas by
such a financial
institution as prescribed by the Presidential Decree (hereafter referred
to as a "financial institution" in this
Article) under the conditions as
prescribed by the Foreign Exchange Transactions Act.
(2) Deleted.
(3) Any income accruing from an overseas transfer, by a non-resident
or a foreign corporation, of the securities as prescribed by
the Presidential
Decree that are issued by the State, local governments or domestic
corporations, shall be exempted from the income
tax or corporate tax.
Article 22 (Corporate Tax Exemption on Dividend Income from Investment
in Overseas Resource Development)
RESTRICTION OF SPECIAL TAXATION ACT
42
(1) In cases where a domestic corporation's income for each business year
ending on or before December 31, 2009 includes any dividend
income from
its investment in overseas resources development projects as prescribed
by the Presidential Decree pursuant to the
Foreign Exchange Transactions
Act (including a resources processing business under the foreign capital
inducement conditions set
forth by the host country), the portion of such
dividend exempted from the tax of the host country shall be exempted
from corporate
tax.
(2) In cases where paragraph (1) above and Article 57 (3) of the Corporate
Tax Act are concurrently applicable to such dividend
received by a domestic
corporation, only one of them shall be selected and applied thereto.
Article 23 (Inclusion of International
Ship Transfer Margin in Deductible
Expenses)
(1) In cases where a domestic corporation transfers a ship directly employed
for its business (referring to a ship registered under
the International Ship
Registration Act; hereafter in this Article the same shall apply) on or
before December 31, 2008, and acquires
a new ship with such transfer
proceeds not later than the end of the business year whereto belongs the
transfer margin spent for
acquiring a new ship may be eligible to deferred
taxation by including it in deductible expenses under the conditions as
prescribed
by the Presidential Decree, in calculating its income for the
relevant business year.
(2) In cases where a corporation that has failed to acquire, after the transfer
of a ship, a new one in the business year whereto
belongs the transfer
date, intends to acquire a new ship within 2 years from the commencing
date of the following business year,
it may include the transfer margin in
deductible expenses by applying mutatis mutandis paragraph (1). In this
case, the "amount
spent" shall be regarded as the "amount to be spent".
(3) In cases where a corporation that has included the transfer margin
in
deductible expenses under paragraph (2) fails to spend the amount included
in deductible expenses for acquiring a new ship within
the given period,
or is dissolved before it acquires a new ship (excluding a case of merger),
the amount added to deductible expenses
shall be added to the gross income,
in calculating its income for the business year whereto belongs the date
RESTRICTION OF SPECIAL
TAXATION ACT
43
on which such a cause occurs. In this case, an additional amount equivalent
to the interest that is calculated under the conditions
as prescribed by
the Presidential Decree shall be paid as the corporate tax at the time
that the return of the tax base of the
relevant business year is filed and
the relevant tax amount shall be deemed the tax amount payable pursuant
to the provisions of
Article 64 of the Corporate Tax Act.
(4) In applying the provisions of paragraphs (1) through (3), the calculation
of the transfer margin spent to acquire a new ship
and of the amount
to be added to the gross income, the submission of a specification of ship
acquisition and a plan for ship acquisition,
and other necessary matters
shall be prescribed by the Presidential Decree.
SECTION 4 Special Taxation for Investment Promotion
Article 24 (Tax Credit for Investment, etc. in Productivity Increase
Facilities)
(1) In cases where a national makes an investment in the facilities falling
under any of the following subparagraphs (excluding
any investment in
used items) not later than December 31, 2009 in order to increase
productivity, an amount equivalent to 3/100
of such investment amount
(7/100 in the case of a small or medium enterprise) shall be deducted
from his income tax (limited to
the income tax on his business income)
or corporate tax: 1. Facilities as prescribed by the Presidential Decree which belong to
those for the improvement and automation of processes;
2. Equipment as prescribed by the Presidential Decree which belongs
to high-technology equipment;
3. Deleted; 4. Facilities for enterprise resource planning;
5. Facilities for electronic commerce;
6. Computers and their peripheral devices, software, telecommunications
facilities and other tangible and intangible facilities used
for the
management of the supply network, including material procurement,
production planning, and inventory management, in an
electronic
RESTRICTION OF SPECIAL TAXATION ACT
44
format, of which the depreciation period is two years or longer
(hereinafter referred to as the "facilities for the supply network
management system") ; and
7. Computers and their peripheral devices, software, telecommunications
facilities and other tangible and intangible facilities used
for the
management of customer relations, including integration and analysis
of data on customers and marketing, in an electronic
format, of which
the depreciation period is two years or longer (hereinafter referred to
as the "facilities for the customer relations
management system"); and
8. Computers and their peripheral devices, software, telecommunications
facilities, and other tangible and intangible facilities
used for the
strategic and efficient management of logistics process, including
purchasing, management of orders, production, warehouse
management, inventory management, and distribution network, of
which the depreciation period is two years or longer (hereinafter
referred
to as the "facilities for the logistics management data system").
(2) In cases where any small or medium enterprise uses,
by means of
Internet, facilities falling under paragraph (1) 4 through 7, which are owned
by any other person on or before December
31, 2009, in order to increase
its productivity, an amount equivalent to 7/100 of their use fees shall
be deducted from its income
tax (limited to the income tax on business
income) or corporate tax.
(3) The provisions of Article 11 (1), (3) and (4) shall apply mutatis mutandis
to the method of tax credit in accordance with the
provisions of paragraph
(1) or (2).
45
business income) or corporate tax. In this case, the provisions of Article
11 (1), (3) and (4) shall apply mutatis mutandis to the
methods of tax
credit: 1. Deleted; 2. Deleted; 3. Facilities for a distribution business to be run under the Distribution
Industry Development Act;
4. Facilities installed in a trustee company by a truster company under
the Act on the Protection of the Business Sphere of Small
and Medium
Enterprises and Promotion of Their Cooperation;
5. Industrial disaster prevention facilities;
6. Mining safety facilities;
7. Facilities reinforced or expanded by an individual designated as per-
son under priority management under the Emergency Resources
Management Act, in order to carry out his emergency preparedness duties
in compliance with the Government's order to reinforce
and expand
such facilities;
8. Facilities for preventing hazardous elements, which are installed by
a relevant business operator subject to standards for the
priority
control of hazardous elements under Article 9 of the Processing of
Livestock Products Act or Article 32-2 of the Food
Sanitation Act;
9. Facilities installed to prevent technology from being illegally
transferred; and
10. Facilities installed to develop overseas resources.
(2) A national who intends to be eligible for the application of paragraph
(1) shall apply for tax credit under the conditions as prescribed by the
Presidential Decree.
Article 25-2 (Tax Credit for Investment in Energy-Economizing Facilities)
(1) In cases where a national makes an investment (excluding
any investment
in used goods), not later than December 31, 2008, in the energy-economizing
facilities prescribed by the Presidential
Decree, the amount equivalent
to 10/100 of the relevant invested amount shall be deducted from the income
tax (limited to the income
tax on his business income) or corporate tax.
In this case, the provisions of Article 11 (1), (3) and (4) shall apply mutatis
mutandis
to the methods of tax credit.
2002; Act No. 7322, Dec. 31, 2004; Act No. 7839, Dec. 31, 2005>
(2) A national who intends to be eligible for the application of
paragraph
(1) shall apply for tax credit under the conditions as prescribed by the
Presidential Decree.
[This Article Newly Inserted by Act No. 6297, Dec. 29, 2000]
Article 25-3 (Tax Credit for Investment in Facilities for Environmental
Conservation)
(1) In cases where a national makes an investment (excluding any
investment in used goods) in any facility for environmental conservation
prescribed by the Presidential Decree not later than December 31, 2010,
the amount equivalent to 7/100 of the investment amount
shall be deducted
from the income tax (limited to the income tax on his business income)
or the corporate tax. In this case, Article
11 shall apply mutatis mutandis
to the methods of tax credit.
(2) A national who intends to be eligible for the application of paragraph
(1) shall apply for tax credit under the conditions as
prescribed by the
Presidential Decree.
[This Article Newly Inserted by Act No. 8827, Dec. 31, 2007]
Article 25-4 (Tax Credit for Investment in Facilities for Improved
Quality
Management of Medicines)
(1) In cases where a national makes an investment (excluding any
investment in used goods) in any facility for improved quality
management
of medicines prescribed by the Presidential Decree not later than December
31, 2010, the amount equivalent to 7/100
of the investment amount shall
be deducted from the income tax (limited to the income tax on his business
income) or the corporate
tax. In this case, Article 11 shall apply mutatis
mutandis to the methods of tax credit.
(2) A national who intends to be eligible for the application of paragraph
(1) shall apply for tax credit under the conditions as
prescribed by the
Presidential Decree.
[This Article Newly Inserted by Act No. 8827, Dec. 31, 2007]
Article 26 (Temporary Tax Credit for Investment)
(1) In cases where the Government deems it necessary for business
adjustment, a tax amount equivalent to an amount computed by
multiplying an amount of money not exceeding 10/100 of an investment
prescribed by the Presidential Decree (excluding any investment
in used
items) by the rate prescribed by the Presidential Decree shall be deducted
RESTRICTION OF SPECIAL TAXATION ACT
47
from income tax (limited to income tax on business income; hereafter the
same shall apply in this paragraph) or corporate tax for
a taxable year
prescribed by the Presidential Decree: Provided, That with respect to an
investment made from July 1, 2003 to December
31, 2004, an amount
equivalent to the 15/100 of the amount of such investment shall be deducted
from income tax or corporate tax.
(2) When a domestic corporation is to make a mid-year prepayment under
Article 63 of the Corporate Tax Act (excluding the case of
a mid-year
prepayment under the proviso of Article 63 (1) and Article 63 (4) of the
same Act), the corporation may, if it has made
an investment whereto
paragraph (1) is applicable during the same period of the mid-year
prepayment, be allowed to pay as its mid-year
prepayment a tax amount
left by subtracting the amount of temporary investment tax deduction
for such investment from the full
tax amount to be paid for the same mid-year
prepayment. In such case, if a tax amount for a mid-year prepayment
left by subtracting
the amount of temporary investment tax deduction is
less than 50/100 of the minimum tax amount for the immediate preceding
year
of taxation which was assessed under the provisions of Article 132,
the amount of temporary investment tax deduction equivalent
to the lacking
portion of such minimum tax amount shall not be allowed to be subtracted.
(3) When a resident is to make a mid-year prepayment under Article 65
of the Income Tax Act, such resident may, if he has made an
investment
whereto paragraph (1) is applicable during the same period of the mid-year
prepayment, fix as his mid-year prepayment
a tax amount left by subtracting
the amount of temporary investment tax deduction for such investment (limited
to the tax on business
income of the full tax amount for the mid-year
prepayment; hereafter in this paragraph the same shall apply) from the
full tax
amount to be paid for the same mid-year prepayment and thereby
file a tax return for his mid-year prepayment with the head of the
tax
office having jurisdiction over the place wherein tax is paid within the
period from the 1st to the 30th of November. If an
amount equivalent
to a mid-year prepayment tax on business income left by subtracting
the amount of temporary investment tax deduction
is less than 50/100
of the minimum tax on business income for the immediate preceding year
of taxation which was assessed under
the provision of Article 132, the
RESTRICTION OF SPECIAL TAXATION ACT
48
amount of temporary investment tax deduction equivalent to the deficiency
of such minimum tax amount shall not be allowed to be
subtracted.
(4) If a resident has filed a tax return under paragraph (3), he shall be
deemed to have filed a tax return under the provision
of Article 65 (3)
of the Income Tax Act and thereby the same Act (excluding the latter
part of Article 65 (9)) shall apply in this
case.
(5) A national who intends to be eligible for the application of paragraphs
(1) through (4) shall apply for tax credit under the
conditions as prescribed
by the Presidential Decree.
With respect to interest derived from social infrastructure bonds and flood
control bonds as determined by the Presidential Decree,
which mature
in 15 or more years from the date of their issue and are issued not later
than December 31, 2009, notwithstanding
Article 14 of the Income Tax
Act, such interest income shall not be added in calculating the global income
tax base; on the other
hand, it shall be subject to the application of the
tax rate as provided in Article 129 (1) 1 (c) of the same Act.
(1) If a national acquires, or begins to invest in, a fixed asset as determined
by the Presidential Decree not later than June 30,
2004 in order to use
it for business purposes, he may, whether or not depreciation cost for
the asset concerned has been included
in the item of deductible expenses
in settling accounts for each taxable year, include such depreciation cost
in deductible expenses
within the limits of an amount computed under
the conditions as prescribed by the Presidential Decree (hereafter in
this Article
referred to as the "amount not exceeding the limits of
depreciation") in calculating the amount of income for the taxable year
concerned.
(2) A national who desires to be eligible for the application of the special
RESTRICTION OF SPECIAL TAXATION ACT
49
case of the inclusion of depreciation cost in deductible expenses under
paragraph (1) shall apply for such special case under the
conditions as
prescribed by the Presidential Decree.
(3) In applying the provisions of paragraph (1), such matters as may be
necessary concerning the period of asset acquisition, the
initiation of
investment, inclusion of depreciation cost in deductible expenses, methods
for settling the amount exceeding the
limits of depreciation, etc. shall
be determined by the Presidential Decree.
[This Article Newly Inserted by Act No. 7003, Dec. 30, 2003]
SECTION 4-2 Deleted.
Articles 30-2 and 30-3 Deleted.
RESTRICTION OF SPECIAL TAXATION ACT
50
(2) Anyone who has taken the donation of the start-up business fund
shall commence his business within one year from the date on
which he
takes the donation thereof. The case falling under any of the following
subparagraphs shall not be deemed as the start-up
business:
1. Where anyone succeeds the previous business by means of merger,
division, investment in kind or acquisition by transfer of the
business
or runs the same type of business after taking over or purchasing the
assets that are used for the previous business;
2. Where any resident incorporates a new corporation after converting
the business that has been run by him into a corporation;
3. Where anyone runs the same type of business as the previous business
after resuming the business after discontinuing the business;
and
4. Where it is difficult to deem that a new business is commenced because
anyone expands his business or adds other business and
other similar
case that is prescribed by the Presidential Decree.
(3) In cases where anyone who has commenced his business pursuant
to
the provisions of paragraph (2) after taking the donation of the start-up
business fund uses a new start-up business fund in
connection with the
original start-up business after taking the donation of such new start-up
business fund, the provisions of
paragraph (2) 3 and 4 shall not apply
to such case.
(4) Anyone who takes the donation of the start-up business fund shall
use all of such start-up business fund for the relevant purpose
by the
date on which 3 years lapse from the date on which he takes the donation
of such start-up business fund.
(5) Anyone who takes the donation of the start-up business fund shall,
when he commences his business pursuant to the provisions
of paragraph
(2), submit the details of the spending of the start-up business fund to
the head of tax office having jurisdiction
over the place where the gift
tax is paid on the date that is set by the Presidential Decree. In this
case, where he fails to submit
the details of the spending of the start-up
business fund to the head of the relevant tax office or the details of the
spending
of the start-up business fund are unclear, an amount that is
calculated by multiplying 3/1,000 by the non-submitted portion or the
unclear portion shall be levied as the additional tax on the failure to submit
the details of the spending of the start-up business
fund.
RESTRICTION OF SPECIAL TAXATION ACT
51
(6) In cases where the donated start-up business fund falls under any
of the following subparagraphs, the gift tax and the inheritance
tax shall
be levied on the amount that is provided for in each subparagraph pursuant
to the Inheritance Tax and Gift Tax Act. In
this case, an amount equivalent
to the interest that is calculated under the conditions as prescribed by
the Presidential Decree
shall be added to the gift tax to be levied:
1. Where the start-up business is not commenced pursuant to the provisions
of paragraph (2): The start-up business fund;
2. Where the start-up business fund is used for running any business
that does not fall within the categories of small or medium
enterprises
eligible for the start-up business fund: The start-up business fund
spent for the business that does not fall within
the categories of small
or medium enterprises eligible for the start-up business fund;
3. Where the newly donated start-up business fund is not spent pursuant
to the provisions of paragraph (3): The start-up business
fund that
is not spent for the relevant purpose;
4. Where the start-up business fund (including the increased value portion
that accrues from the start-up business; hereinafter referred
to as
the "start-up business fund, etc.") has been spent for the business purpose
other than the relevant business purpose within
10 years after the start-up
business fund is donated: The start-up business fund, etc. that has
been spent for the business purpose
other than the relevant business
purpose; and
5. Where the business has been discontinued within 10 years after the
business is commenced and other case that is prescribed by
the
Presidential Decree: The start-up business fund and other amount
that is prescribed by the Presidential Decree.
(7) In the application of the provisions of Article 3 (3) of the Inheritance
Tax and Gift Tax Act, the start-up business fund shall
be deemed the
donated property that is added to the inherited property.
(8) In the application of the provisions of Article 13
(1) 1 of the Inheritance
Tax and Gift Tax Act, the start-up business fund shall be added to the
taxable value of the inheritance
tax regardless of the period ranging from
the date on which the start-up business fund is donated to the date on
which the inheritance
commences and in the application of the provisions
RESTRICTION OF SPECIAL TAXATION ACT
52
of subparagraph 3 of Article 24 of the same Act, the start-up business
fund shall not be deemed the value of the donated property
that is added
to the taxable value of the inheritance tax.
(9) In cases where the provisions of Article 28 of the Inheritance Tax
and Gift Tax Act are applied to the amount of the gift tax
on the start-up
business fund, the amount of the gift tax on the start-up business fund
shall be deducted from the calculated tax
amount of the inheritance tax,
notwithstanding the provisions of paragraph (2) of the same Article. In
this case, where the amount
of the gift tax to be deducted exceeds the
calculated tax amount of the inheritance tax, the amount of the gift tax
equivalent
to the difference between them shall not be refunded.
(10) In cases where the gift tax is levied on the start-up business fund,
the value of other property than the start-up business fund that is donated
by the same person (including his spouse) shall not
be added to the taxable
value of the gift tax on the start-up business fund, notwithstanding the
provisions of Article 47 (2) of
the Inheritance Tax and Gift Tax Act and
even when a return of the tax base of the gift tax on the start-up business
fund is filed,
the tax credit for return provided for in the provisions of Article
69 (2) of the same Act and the annual installment payment provided
for
in the provisions of Article 71 (1) of the same Act shall not be applied.
(11) Anyone who intends to make him eligible for
the application of the
provisions of paragraph (1) shall file an application for the special case
by the deadline for filing a
return of the tax base of the gift tax. In this
case, if he fails to file the application for the special case by the return
deadline,
the provisions governing the special case shall not apply to
him.
(12) The taxation of the gift tax and the inheritance tax shall be governed
by the Inheritance Tax and Gift Tax Act unless the taxation
thereof is
prescribed otherwise in this Article.
(13) Article 30-6 shall not apply to the residents to whom paragraph (1)
shall apply.
53
in this Article) for the purpose of succeeding to the family business from
his parent aged 60 or older (including a parent of his
father or mother,
in cases where his father or mother is dead at the time when such donation
is made; hereafter the same shall
apply in this Article), who has engaged
in the family business under Article 18 (2) 1 of the Inheritance Tax and
Gift Tax Act continuously
for ten years or longer, on or before December
31, 2010, and succeeds the family business as prescribed by the Presidential
Decree,
the gift tax shall be levied at the tax rate of 10/100 after deducting
500 million won from the taxable value subject to the gift
tax,
notwithstanding Articles 53 (1) and 56 of the Inheritance Tax and Gift
Tax Act.
(2) In cases where the successor to whom stocks, etc. have been donated
under paragraph (1) does not succeed to the family business
as prescribed
by the Presidential Decree or where the successor to whom stocks, etc. have
been donated and who succeeds to the
family business falls under any
of the following subparagraphs without justifiable grounds prescribed by
the Presidential Decree
within ten years from the date on which such
donation is made, the gift tax shall be levied against the taxable value
of the stocks,
etc. in accordance with the Inheritance Tax and Gift Tax
Act. In this case, the amount equivalent to an interest calculated as
prescribed by the Presidential Decree shall be levied in addition to the gift
tax:
1. In cases where the successor does not engage in the family business
or suspend or close down the family business; and
2. In cases where the equities of the successor to whom stocks, etc. have
been donated are reduced.
(3) The provisions of Article 30-5 (7) through (12) shall apply mutatis
mutandis to the donation of the stocks, etc. under paragraph
(1). In this
case, the term "start-up business fund" shall be construed as "stocks,
etc.".
(4) Necessary matters concerning the method of applying special taxation
of the gift taxes in cases where Articles 41-3, 41-5, and
42 of the Inheritance
Tax and Gift Tax Act shall be applicable, the method of applying the
deductible for inheritance of a family
business in cases where inheritance
proceedings commence after the stocks, etc. were conveyed as a gift, and
the extent of donors
and donees shall be prescribed by the Presidential
RESTRICTION OF SPECIAL TAXATION ACT
54
Decree.
(5) Article 30-5 shall not apply to the residents to whom paragraph (1)
shall apply.
[This Article Newly Inserted by Act No. 8827, Dec. 3, 2007]
Article 31 (Carryover Taxation, etc. of Transfer Income Tax on
Consolidation
between Small or Medium Enterprises)
(1) In cases where a small or medium enterprise to be extinguished by
a consolidation between
the small or medium enterprises operating the
type of business that is prescribed by the Presidential Decree, transfers
its fixed
assets for business as prescribed by the Presidential Decree
(hereinafter referred to as the "fixed assets for business") to a corporation
newly incorporated by consolidation or a surviving corporation after
consolidation (hereafter referred to as the "consolidated
corporation" in
this Article) not later than December 31, 2009, the said fixed assets for
business may be subjected to a carryover
taxation.
(2) The scope of and requirements for a consolidation between small or
medium enterprises subjected to the application of paragraph
(1) shall
be prescribed by the Presidential Decree.
(3) A national who intends to be subjected to the application of paragraph
(1) shall file an application for a carryover taxation
under the conditions
as prescribed by the Presidential Decree.
(4) In cases where a small or medium start-up enterprise and a small
or medium start-up venture enterprise under Article 6 (1) and
(2) or a
national subjected to tax reduction or exemption under Article 64 (1),
makes a consolidation under paragraph (1) prior
to the expiration of the
tax reduction or exemption period under Article 6, 64 or 121, the consolidated
corporation may be subjected
to the application of Article 6, 64 or 121
during the remaining tax reduction or exemption period under the conditions
as prescribed
by the Presidential Decree: Provided, That the provisions
of Article 121 shall apply only to the business assets acquired before
the
consolidation under paragraph (1).
55
Article 63 or 68, the consolidated corporation may be subjected to the
application of Article 63 or 68 during the remaining tax
reduction or
exemption period under the conditions as prescribed by the Presidential
Decree.
(6) In cases where a national having the undeductible tax amount under
Article 144 makes a consolidation under paragraph (1), the
consolidated
corporation may succeed such undeductible tax amount of the relevant
national and be subjected to the tax deduction
under the conditions as
prescribed by the Presidential Decree.
Article 32 (Carryover Taxation of Transfer Income Tax on Conversion into
Corporation)
(1) In cases where a resident converts his business into a corporation
(excluding a corporation operating a consumptive service
business), not
later than December 31, 2009, by making an investment in kind of the
fixed assets for business, or in accordance
with a method of business transfer
or takeover prescribed by the Presidential Decree, the relevant fixed assets
for business may
be subjected to a carryover taxation.
(3) A national who intends to be subjected to the application of paragraph
(1) shall apply for the carryover taxation under the
conditions as prescribed
by the Presidential Decree.
(4) The provisions of Article 31 (4) through (6) shall apply mutatis
mutandis to a corporation to be established under paragraph
(1).
Article 33 (Special Taxation for Small or Medium Enterprises and
Trade-Adjusted Enterprises Whose Business is Converted)
(1) In cases where any national who runs a small or medium enterprise
transfers his fixed assets for business that are used directly
for the
pre-conversion business (hereafter referred to as the "fixed assets for the
pre-conversion business" in this Article) on
or before December 31, 2008
and acquires the fixed assets for business that are used directly for the
converted business within
one year from the transfer date in order to convert
the business that he has continued to run without interruption for not
less
than five years and the business that an enterprise subject to trade
RESTRICTION OF SPECIAL TAXATION ACT
56
adjustment under Article 6 of the Act on Trade Adjustment Assistance
to the Manufacturing Industry (hereafter referred to as a "trade-adjusted
enterprise" in this Article and Article 33-2) has run (hereafter referred
to as the "pre-conversion business" in this Article)
into the manufacturing
business, the value-added telecommunications business, the research and
development business, the science
and technology service business, or
other businesses prescribed by the Presidential Decree (hereinafter referred
to as the "converted
business") outside the over-concentration control zone
of the Seoul Metropolitan area (in cases of a trade-adjusted enterprise,
including a case of converting its business within the over-concentration
control zone of the Seoul Metropolitan Area), with respect
to the marginal
profit that accrues from the transfer of the fixed assets for the pre-conversion
business, he may choose not to
include an amount that is calculated under
the conditions as prescribed by the Presidential Decree in the gross income
in calculating
his income amount for the relevant business year. In this
case, not less than the amount obtained by equally dividing the relevant
amount shall be included in the gross income during the period of each
of three business years from the business year whereto belongs
the date
on which three years lapse after the end of the business year to which
the transfer date belongs.
1. The way of reducing and exempting the tax amount equivalent to 50/
100 of the transfer income tax under the conditions as prescribed
by
the Presidential Decree in cases where the machinery and equipment
of the converted business are acquired with the transfer
value of the
business buildings of the pre-conversion business and the land attached
thereto (hereafter referred to as the "transfer
value of the preconversion
business" in this Article); and
2. The way of deferring the taxation under the conditions as prescribed
by the Presidential Decree in cases where the business buildings
of the
converted business and the land attached thereto are acquired with
the transfer value of the pre-conversion business.
(3)
In cases where any national who is eligible for the application of the
RESTRICTION OF SPECIAL TAXATION ACT
57
provisions of paragraphs (1) and (2) does not convert his business or
discontinues or shuts down his converted business within 3
years from
the date on which he begins running his converted business, he shall include
an amount that is calculated under the
conditions as prescribed by the
Presidential Decree in the gross income when he calculates his income
amount of the business year
during which the relevant grounds occur or
pay the reduced and exempted tax amount or taxation-deferred tax amount
as the transfer
income tax. In this case, the corporate tax or the transfer
income tax that is added by an amount equivalent to the interest that
is calculated under the conditions as prescribed by the Presidential Decree
when he files a return of the tax base of the relevant
taxable year, and
the relevant tax amount shall be deemed the tax amount that has to be
paid pursuant to the provisions of Article
64 of the Corporate Tax Act
and Article 111 of the Income Tax Act.
(4) In the application of the provisions of paragraphs (1) through (3),
the scope of the business conversion, the scope of the fixed
assets for business,
the details of the marginal profit that accrues from the transfer of the
fixed assets for business, the filing
of the written application for reducing
and exempting the tax amount and the written application for deferring
the taxation and
other necessary matters shall be prescribed by the
Presidential Decree.
[This Article Newly Inserted by Act No. 7839, Dec. 31, 2005]
Article 33-2 (Abatement or Exemption of Tax Amount for Small or Medium
Enterprises and Trade-Adjusted Enterprises Whose Business is
Converted)
(1) In cases where any national who runs a small or medium enterprise
converts the business that he has continued to run without
interruption
for at least five years and the business that a trade-adjusted enterprise
has run (hereafter referred to as the "pre-conversion
business" in this Article)
into the manufacturing business, the value-added telecommunications
business, the research and development
business, the science and
technology service business, or other businesses prescribed by the
Presidential Decree (hereafter referred
to as the "converted business" in
this Article) outside the over-concentration control zone of the Seoul
Metropolitan area (in
cases of a trade-adjusted enterprise, including a
case of converting its business within the over-concentration control zone
RESTRICTION
OF SPECIAL TAXATION ACT
58
of the Seoul Metropolitan area), not later than December 31, 2009 (in
the case of the establishment of a new factory, not later
than December
31, 2011) according to the following subparagraphs, a tax amount equivalent
to 50/100 of the income tax or corporate
tax on incomes derived from
the converted business for the taxable year whereto belongs the date on
which the first income is derived
from such business (where no income
is derived from the business concerned by the taxable year whereto belongs
the date on which
five years pass from the date of business conversion,
the taxable year whereto belongs the date on which the five years pass)
since
the date of converting the business prescribed by the Presidential
Decree (hereafter referred to as the "date of business conversion"
in this
Article) and also for the subsequent taxable years that end within three
years after the beginning of the following taxable
year shall be reduced
or exempted: 1. Where he transfers or discontinues the pre-conversion business and
converts it into the converted business within one year (in
the case
of the establishment of a new factory, within three years) after the
date of such transfer or discontinuance; and
2. Where he reduces the size of the pre-conversion business and adds
the converted business under the conditions as prescribed by
the
Presidential Decree.
(2) In the application of the provisions of paragraph (1) 2, the reduction
or exemption of the income tax or corporate tax pursuant
to the said
paragraph shall not apply to the taxable years determined by the Presidential
Decree during the period in which the
income tax or corporate tax is reduced
or exempted.
(3) In cases where any national to whom the provisions of paragraph (1)
were applied does not convert his business or discontinues
or shuts down
his converted business within 3 years from the date of the business
conversion, he shall pay, as the income tax or
corporate tax, the tax amount
reduced or exempted at the time of calculating the income amount for
the taxable year whereto belongs
the date on which such a cause occurs.
(4) In cases where the income tax or corporate tax reduced or exempted
pursuant to paragraph
(1) is paid in accordance with paragraph (3), the
provisions of Article 40 (2) concerning the additional amount equivalent
to the
interest shall apply mutatis mutandis.
3, 2007>
(5) A national who desires to be eligible for the application of the pro-
visions of paragraph (1) shall make an application for
the reduction
or exemption of tax amount under the conditions as prescribed by the
Presidential Decree.
[This Article Newly Inserted by Act No. 8146, Dec. 30, 2006]
Article 34 Deleted.