[Changes Next Year] Reduced Tax Burden for Small Business Owners... Simplified Taxpayer Sales Threshold Raised to 80 Million Won

Government Announces 'Changes Starting from 2021'
VAT Simplified Taxation Threshold Raised from 48 Million KRW to Under 80 Million KRW

[Asia Economy Reporter Jang Sehee] Starting next year, the criteria for simplified VAT taxpayers will be raised from the current annual sales of less than 48 million KRW to less than 80 million KRW. The exemption criteria for taxpayers who do not pay VAT at all will also be raised from annual sales of less than 30 million KRW to less than 48 million KRW.

According to the government’s announcement on the "Changes from 2021" on the 28th, general taxpayers with annual sales under 80 million KRW this year, who do not fall under the exclusion criteria for simplified taxation, will be converted to simplified taxpayers in July next year. However, the current 48 million KRW standard will be maintained for real estate rental businesses and taxable entertainment venues.

The carryforward period for all tax credits granted under the Restriction of Special Taxation Act will be extended to 10 years. This is to support sufficient deductions even when large initial investments are required but it takes a long time to generate profits, or when losses occur due to deteriorating business performance.

Currently, if a taxpayer cannot use the credit in the relevant year due to losses or no tax payable, they can carry it forward for 5 years. However, if certain conditions are met, such as being a newly established small business or incurring R&D expenses for new growth source technologies, the period can be extended to 10 years. Going forward, all tax credits will uniformly be allowed to be carried forward for 10 years.

A low tariff rate of 3% will be imposed on flow regulators used in semiconductor manufacturing regardless of their operating method. Currently, flow regulators operated hydraulically or pneumatically are subject to a 3% tariff, while those operated electrically are subject to an 8% tariff. From next year, the same tariff will be applied to all flow regulators.

The government will also introduce an electronic inheritance tax filing service for the first time starting February next year. This aims to improve convenience in inheritance tax filing as the number of filers increases due to population aging and rising property values. The filing interface will be designed so that the general public can easily file without the help of tax agents, and tax agents will be able to convert and file reports prepared in tax accounting programs.

Additionally, a simulation calculation service will be established to allow users to check estimated inheritance tax amounts by simply entering basic asset information, and a comprehensive information portal will be built to provide an overview of inheritance and gift tax-related information at a glance.

Furthermore, newspaper subscription fees will be added to the income deduction targets for credit card and other usage amounts for workers with total annual wages of 70 million KRW or less. The deduction rate is 30%, and the deduction limit is up to 1 million KRW, including book and performance expenses, and museum and art gallery admission fees.

Moreover, the government plans to include virtual asset service providers and online investment-linked finance operators (P2P) in the scope of anti-money laundering obligations. Accordingly, virtual asset service providers and P2P finance operators must fulfill basic anti-money laundering duties such as customer identification and suspicious transaction reporting. These obligations will apply to virtual asset service providers from March 25 and to P2P finance operators from May 1.

In addition, the government introduced plans to ▲clarify the procedures for protecting the rights of consignors regarding customs clearance suspension, ▲include goods for fulfilling general export contracts in the re-export reduction targets, ▲change the validity period of prior classification reviews, ▲establish preliminary VAT notices for small corporate businesses, ▲change the recommending institution for designated donation organizations to the National Tax Service, and ▲principally impose prior regulations on all financial products.