Korea’s 2025 Tax Reform Proposals – Key Highlights for International Businesses

Released by the Ministry of Economy and Finance on July 31, 2025, the 2025 tax reform proposal highlights significant changes regarding corporate, personal, indirect, and international taxation. Therefore, it is important for corporations, foreign investors, and multinational enterprises to stay updated on impactful changes awaiting legislative approval. 

The following summary outlines such proposals. 

1. Corporate Income Tax Reform

Rate Reversal:

The proposal would raise the top marginal corporate income tax rate for companies earning over KRW 300 billion from 24 to 25% to re-establish the tax capacity principle.

Taxable Income (KRW)	Current Corporate Tax Rate	Proposed Corporate Tax Rate (from 2026)	Change
Up to 200 million	9%	10%	+1%
200 million – 20 billion	19%	20%	+1%
20 billion – 300 billion	21%	22%	+1%
Over 300 billion	24%	25%	+1%

Enhanced R&D credits: 

Sectors of strategic interest, such as AI and autonomous transport, are now eligible for expanded R&D and plant investment credits. These high-priority sectors benefit from a higher value of tax credits under NST status.

Outbound Restructuring Deferral: 

Korean companies are allowed to delay paying tax on capital gains for seven years if they contribute shares of a foreign subsidiary to a related company abroad. This delay is conditional on meeting all rules about who owns the companies and how the operations continue.

Reshoring Incentives for Partial Return:

Companies that bring some or all of their production back to Korea can now get tax incentives. The previous rule only offered incentives for a complete return.

2. Other Key Tax Changes

High-Dividend Stocks –

Investors of eligible high-dividend listed companies will have the option to choose a 14–35% separate taxation, as an alternative to treating dividends as part of total income. This action is aimed at promoting long-term equity investment.

Revival of STT (Securities Transaction Tax)

There is also a proposal for lowering the security transaction tax (STT) levels, which were imposed temporarily when markets crashed.

• KOSPI-listed shares: 0.05% + Special Rural Development Tax (for size of 0.005) 0.15%

• KOSDAQ Listed shares: 0.2% (no Special Rural Development Tax)

This return to previous taxation levels is in line with the government's policy that financial transaction-based fiscal revenue should be sustainable.

Capital Gain Tax 

The threshold for capital gains tax on publicly listed shares is set to sharply decrease starting in January 2026. The definition of a "major shareholder" will revert to the old standard, treating individuals (including foreign investors) with holdings over just KRW 1 billion in a single company(or 1%+ ownership) as taxable. This is a substantial decrease from the current KRW 5 billion limit.

Dividend Gross-up Rate Adjustment

The tax credit individuals get for corporate tax already paid on dividends is changing. The government is reducing the "dividend gross-up rate" from 11% to 9%. This aims to make the system fairer, but the bottom line is that dividend recipients, particularly large shareholders, may see a small decrease in their tax credit, potentially raising their overall dividend tax.

Expanded Inheritance Taxpayer Scope

In order to prevent tax avoidance, liability to inheritance tax will be extended to for-profit business companies being endowed with shares or assets. However, if these gifts are affected by inheritance tax, then both the donor's corporation and the donor’s estate will be jointly liable.

3. International Taxation – Foreign Investor Considerations

Global Minimum Tax (DMTT)

Korea is set to introduce a 15% Domestic Minimum Top-up Tax for subsidiaries of multinational enterprises with sales in excess of EUR750 million. This guarantees that even if there are domestic incentives, big companies pay at least a minimum rate of tax.

Stricter Withholding Tax Compliance

A non-resident will now be required to provide documentation to avail treaty benefits for lower withholding rates. This aligns Korea’s practice with international standards on preventing treaty abuse.

Clarified Source Rules

The reform clarifies when dividends and other income are considered Korean-source income.

BIS Investment Exemption

Income on dividends, interest, and gains earned by the Bank for International Settlements (BIS) directly or through intermediaries will be exempt from Korean withholding tax.

Enhanced Indirect Foreign Tax Credit (FTC)

Investors in multi-tiered or pooled fund structures will find it easier to claim foreign tax credits. This will reduce double taxation and make cross-border fund investments more efficient.

4. Effective Dates and Legislative Status

Most of these provisions or amendments will take effect on January 1, 2026, onwards. However, certain provisions, such as R&D incentives, reshoring benefits, and the Global Minimum Tax, may apply earlier.

It is worth noting that these proposed reforms are still in a proposal stage, and they could be revised during the legislative process.

Final Thoughts

Korea's upcoming tax reform package can prove a major shift toward higher corporate responsibility, stronger investor protections, and alignment with global tax practices. While large corporations are likely to face a higher tax rate, the proposal for incentives for innovation, reshoring, and strategic industries can lead to meaningful opportunities. 

Domestic and foreign investors alike need to review the potential implications of these changes on dividend taxes, trading securities, and capital gains.

If you want to learn more about how these tax revisions can potentially affect your business operation in South Korea and how to prepare for them, get in touch with us at J&J Korea. We are your trusted resource when it comes to doing business in South Korea, whether you are looking for taxation or business registration.