2021 Tax Law Amendment
Strengthening Incentives for Mid-sized Company Performance Bonuses
Indirect Support Effects for Talent Recruitment
[Sejong=Asia Economy Reporter Moon Chaeseok] The government has decided to support tax benefits for performance-sharing in small and medium-sized enterprises (SMEs). It is expected to help secure talent in fields such as software (SW).
According to the '2021 Tax Reform Plan' announced by the Ministry of Economy and Finance on the 26th of last month, the income and corporate tax deduction rate will be increased from 10% to 15% when SMEs provide performance bonuses. Increasing incentives for performance bonuses will make it easier to hire talent.
Employees will continue to receive the existing tax reduction benefits. However, companies and related parties, as well as those with total annual salaries exceeding 70 million KRW, will be excluded from the deduction.
The requirements for management performance bonuses will also be relaxed. From now on, tax benefits can be received for management performance bonuses paid in years when operating profit was not generated. Previously, deductions were only given for performance bonuses paid by companies with operating profits.
Venture companies in the information technology (IT) sector, such as SW development, will also be able to enjoy tax reduction benefits starting next year. In this sector, even if operating profit was not generated, there was a tendency to provide management performance bonuses to secure talent, but under the regulations, employees could not receive tax benefits on those amounts.
The government will also extend the application period for the tax benefits for performance-sharing SMEs from the end of this year to the end of 2024, a three-year extension. The application period will apply to management performance bonuses paid after January 1 of next year.
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