[Changes Next Year] Securities Transaction Tax Cut... KOSPI 0.1% → 0.08%

Changes Starting from 2021

Finance, Fiscal, and Taxation Sector

Securities Transaction Tax Rate.

[Asia Economy Reporter Jusangdon] Next year, the securities transaction tax rate will be reduced to revitalize the stock market. For the KOSPI, it will be lowered from 0.1% to 0.08%. In addition, various investment tax credits with different support targets and levels will be unified into a 'Unified Investment Tax Credit.'

◆Reduction of Securities Transaction Tax Rate= To activate the securities market by reducing transaction costs when transferring stocks, the securities transaction tax rate will be lowered starting January 1 of next year.

The KOSPI rate will be reduced from the current 0.1% to 0.08%, and the KOSDAQ rate from 0.25% to 0.23%. These rates will apply to transfers made from January 1 of next year through 2022. In 2023, the securities transaction tax on the KOSPI will be abolished to 0%, and the KOSDAQ rate will be further reduced to 0.15%.

◆Establishment of Unified Investment Tax Credit= The government has established the 'Unified Investment Tax Credit' by integrating and redesigning various investment tax credits with different support targets and levels to overcome the damage caused by the novel coronavirus disease (COVID-19) early and to boost economic vitality.

The credit targets all business-use tangible assets except land, buildings, vehicles, and equipment. The method adds an additional credit (excess over the average investment amount of the previous three years) to the basic credit (investment amount of the current year). The basic credit rates are 1% for large enterprises, 3% for mid-sized enterprises, and 10% for small and medium enterprises. Additionally, a 3% additional credit applies to all companies.

Furthermore, investments related to new growth technologies receive a preferential basic credit increase of 2 percentage points. In this case, large enterprises can receive a 3%, mid-sized enterprises 5%, and small and medium enterprises 12% tax credit.

The current investment tax credits will be abolished, and for investments made in 2020 and 2021, taxpayers can choose between the current investment tax credit and the unified investment tax credit.

◆Reform of Income Taxation System for Trusts= To utilize the flexibility and diversity of trusts and prevent tax avoidance by trustors, the taxation method on trust income will be diversified according to the type and category of trusts.

Currently, income attributable to trust property is taxed on beneficiaries by source of income generated from the trust property. However, if beneficiaries are not specifically designated or do not exist, taxation is exceptionally imposed on the trustor.

From next year, in principle, taxation will be imposed on beneficiaries by source of income, but if the actual beneficiary is the trustor, taxation will be imposed on the trustor.

This applies to trust contracts concluded from January 1, 2021.

◆Temporary Application of Accelerated Depreciation Special Case for Facility Investment= To enhance economic vitality through investment activation, the special case system for accelerated depreciation on facility investments will be temporarily applied for one year.

Currently, the accelerated depreciation special case applies only to assets acquired from July 1, 2018, to June 30, 2020, but this will be extended to assets acquired until December 31 of next year.

Additionally, from next year, to improve tax payment convenience for school corporations managing private elementary, middle, and high schools, the obligation for interim tax payments will be exempted. Also, investors in New Deal infrastructure funds will have their tax obligations concluded by a 9% withholding tax on dividend income generated from up to 200 million KRW of investment amount.

Individual Savings Accounts (ISA) will also be fully reformed to promote ISA subscription activation. The eligibility will be expanded to residents aged 19 and older (and residents aged 15 to 18 with earned income), and investment in domestic listed stocks will be allowed. The contract period will be relaxed from a minimum of 5 years to 3 years, and contract extensions will be permitted. It will also be possible to carry forward the investment payment limit according to the elapsed contract period. The revised provisions will apply to subscriptions, extensions, and cancellations from January 1, 2021 (including existing subscribers).