Government to Secure 4.6 Trillion Won in Tax Revenue Over 5 Years by Restructuring Tax Exemptions and Reductions [2025 Tax Reform]

Ministry of Economy and Finance Announces Next Year's Tax Reform Plan
16 Programs to Be Reorganized for a More Rational Tax System
Expected to Secure 900 Billion Won in Annual Tax Revenue
Special Corporate Tax Rate for Cooperatives Raised from 12% to 15%
"DMTT" Newly Introduced as Part of Global Minimum Tax
Director of Tax Office: "We Can Tax the Shortfall Ourselves"

The government will reorganize some of the tax-exempt or tax-reduced programs that are set to expire this year. Through this, it plans to secure an additional 4.6 trillion won in tax revenue over the next five years. In this process, the temporary investment tax credit and the tax exemption for cosmetic surgery for foreigners will be terminated. The special corporate tax rate for cooperative corporations such as agricultural and fisheries cooperatives will be extended until 2028, but the tax rate for certain brackets will be raised to 15%.

The Ministry of Economy and Finance announced the "2025 Tax Reform Plan," which includes these measures, at the Tax System Development Committee held at the Bankers' Club in Jung-gu, Seoul on the 31st, chaired by First Vice Minister Lee Hyungil.

Adjustment of Ineffective or Overlapping Policies... Tax Exemption for Foreigners' Cosmetic Surgery Ends

While preparing next year's tax reform plan, the government decided to terminate or reduce 16 out of 72 programs whose sunset date has arrived, in order to rationalize the tax system. As a result, the reduction in tax expenditure will amount to 900 billion won per year, allowing a total of 4.6 trillion won in tax revenue to be secured over the next five years. According to the Ministry of Economy and Finance, this is a significant amount compared to the recent five-year average performance (13 programs, 500 billion won over five years).

The tax expenditure items that the government will terminate as of this year's sunset date are as follows: ▲ Tax exemption on capital gains from shares of specialized companies in materials, parts, and equipment (so-called "Sobu-jang") held by venture investment companies ▲ Temporary investment tax credit under the integrated investment tax credit ▲ Income deduction for youth-type long-term collective investment securities savings ▲ Tax exemption on interest and dividend income from youth leap accounts ▲ Value-added tax refund special provision for medical services for cosmetic surgery for foreign tourists, and a total of seven programs.

The government has decided not to extend the program that applied tax exemption until this year for shares acquired by venture investment companies investing in small and medium-sized enterprises related to materials, parts, and equipment. The Ministry of Economy and Finance evaluated that "the policy effect is insufficient." In addition, the temporary investment tax credit, which applies an additional deduction rate (2 percentage points) for facility investments in general and new growth source technologies by mid-sized and small businesses, will not be extended.

Park Geumcheol, Director of the Tax Office at the Ministry of Economy and Finance, explained, "If you look at the investment tax credit, the deduction rate for additional investment compared to the previous year has been raised starting this year," and added, "Even if the temporary investment tax credit (which allows additional deduction for investments planned for next year to be made this year) is terminated, it will not affect investment." He continued, "If the investment situation worsens in the future, we may consider reintroducing the temporary investment tax credit."

The income deduction for youth-type long-term collective investment securities savings is a program that provides an income deduction for savings in youth-type long-term funds, but its effectiveness is low, so the sunset period will not be extended. In the case of tax exemption on interest and dividend income from youth leap accounts, the Ministry of Economy and Finance explained that since the new administration has introduced the "Youth Future Savings," the overlapping program will be terminated as part of streamlining.

Regarding the special VAT refund provision for medical services for cosmetic surgery for foreign tourists, Director Park explained, "The scale of VAT refunds for foreign tourists has quadrupled over the past three to four years, so the purpose of the system has been achieved." He added, "The refund per person is about 100,000 to 200,000 won. Rather than coming solely for the VAT refund, people come for various reasons and also undergo cosmetic surgery, so we considered several aspects."

Adjustment of Corporate Tax Special Provisions for Cooperatives... 3 Percentage Point Increase for Brackets Exceeding 2 Billion Won

The government will redesign tax expenditures for 20 programs, including: ▲ Tax exemption on capital gains from shares held by venture investment companies ▲ Special tax provisions for investments or acquisitions in specialized companies in materials, parts, and equipment by domestic corporations ▲ Special corporate tax provisions for cooperative corporations ▲ Special tax provisions for comprehensive tax-free savings, among others.

The government has decided to extend the special corporate tax rate for eight cooperative corporations, including agricultural, fisheries, forestry, and credit cooperatives, by three years until 2028, but to raise the special tax rate for the bracket exceeding 2 billion won in taxable income from 12% to 15%. For income up to 2 billion won, the existing 9% tax rate will be maintained. Since the special provision was significant compared to general corporations, adjustment is necessary, but as resistance from cooperative corporations may be strong, it remains to be seen whether the measure will pass the National Assembly.

The program that provided tax exemption on interest and dividend income for those aged 65 and older, persons with disabilities, and basic livelihood security recipients who subscribed to comprehensive tax-free savings products will be extended by three years. However, to address excessive support and focus assistance on vulnerable groups, the eligibility for those aged 65 and older will be adjusted to recipients of the basic pension.

"DMTT Introduced to Complete Global Minimum Tax"

The Domestic Minimum Top-up Tax (DMTT), which is part of the global minimum tax, will be newly introduced. DMTT is designed to allow the jurisdiction where a low-taxed company is located to levy the shortfall amount if the company pays less than the global minimum tax rate. The government has decided to introduce DMTT additionally in the process of securing global minimum tax rights for multinational companies located in Korea that are subject to low tax rates.

Director Park explained, "Within the global minimum tax, the income inclusion rule and the undertaxed payments rule have already been legislated, and the last remaining part is DMTT." He added, "For example, if a domestic subsidiary of a global company is subject to an effective tax rate of 13% in Korea, and the DMTT rate is 15%, we will be able to tax the 2% difference."