Executive Summary
South Korea’s National Tax Service (NTS) advanced major international and domestic tax initiatives this week, including preparation for the second Global Minimum Tax filing under OECD Pillar Two, enactment of penalty regulations for foreign liaison offices, and a breakthrough resolution with Vietnam on delayed VAT refunds for cross-border transactions. Domestically, the NTS reminded taxpayers of late and supplementary application windows for earned income and child tax credits, launched an enhanced year-end tax settlement preview service, and issued updated guidelines for job-creating and investment-expanding enterprises alongside a new SME audit exemption program.
Important Updates
Global Minimum Tax: NTS Prepares for Second Annual Filing with Tax Professionals
The NTS convened a high-level consultation with certified tax accountants, corporate tax directors, and multinational enterprise (MNE) representatives to prepare for the second annual filing of the Global Minimum Tax (GMT) under OECD/G20 BEPS Pillar Two. South Korea’s Global Minimum Tax Act (Act No. 19872), effective for fiscal years beginning on or after January 1, 2024, implements the Qualified Domestic Minimum Top-up Tax (QDMTT), Income Inclusion Rule (IIR), and Undertaxed Profits Rule (UTPR). The first filing cycle (FY2024) concluded in September 2025; the upcoming second filing covers FY2025 with a deadline of 15 months after fiscal year-end (March 31, 2027 for calendar-year entities). The session addressed practical challenges from the first filing, including cross-jurisdictional financial data aggregation, effective tax rate (ETR) calculation per jurisdiction, Substance-Based Income Exclusion (SBIE) application, and Transitional Safe Harbor provisions (de minimis, ETR, and routine profits tests). The NTS unveiled Hometax system upgrades: enhanced CbCR data validation, a new QDMTT credit calculation module, and improved IIR top-up tax allocation guidance. An updated FAQ (v2.0) and revised filing manual will be released by late November 2026. MNE groups with consolidated revenue exceeding €750 million in at least two of the four preceding fiscal years are subject to filing. Penalties under Article 60 include fines up to 0.5% of top-up tax for late filing and 2% for false reporting.
Sources: NTS News
Enactment of Regulation on Penalty Assessment for Failure to Submit Liaison Office Status Reports
The NTS International Tax Division pre-announced the enactment of a new instruction establishing a detailed penalty matrix for non-submission, late submission, or false submission of the Liaison Office Status Report (연락사무소 현황명세서) required under Article 94-2 of the Corporate Tax Act and Article 120 of the Framework Act on National Taxes. The regulation defines penalty amounts (KRW 5 million to KRW 20 million per occurrence) based on delay duration and violation frequency, sets procedures for penalty imposition (prior notice, opportunity to respond), and collection methods. It aligns with BEPS Action 7 scrutiny of permanent establishment status. All foreign corporations operating liaison offices in Korea that do not constitute a PE — including regional headquarters, R&D centers, and marketing offices of MNCs from the US, EU, Japan, China, and Singapore — are affected. The annual report is due by end of February for the prior fiscal year. The regulation takes effect upon final promulgation; entities must ensure the 2026 fiscal year report (due Feb 2027) is filed accurately. The NTS will cross-reference Foreign Exchange Transactions Act reports and customs data to identify non-filers. Companies should immediately review their Korean office classification (liaison vs. branch) to determine filing obligations.
Sources: NTS Pre-announcement
Korea-Vietnam Tax Cooperation Resolves Long-Standing Domestic Export-Import VAT Refund Delays
The NTS announced a breakthrough resolution to chronic VAT refund delays for Korean companies engaged in “domestic export-import” transactions with Vietnamese affiliates — where a Korean parent sells goods to its Vietnamese subsidiary, which then exports to third countries with direct shipment from Korea. Under Vietnamese Decree 100/2019/ND-CP, such transactions qualify as deemed exports eligible for VAT refunds, but Vietnamese authorities imposed extensive documentation and 12-18 month verification delays, straining cash flow for over 200 Korean firms. Through bilateral consultations under the Korea-Vietnam DTAA and Mutual Agreement Procedure, the NTS and Vietnam’s General Department of Taxation (GDT) agreed on: (1) a streamlined 60-day refund processing timeline from complete application; (2) acceptance of electronic invoices and Korea Customs Service-certified shipping documents as sufficient export proof; (3) a dedicated Fast-Track Refund Channel at GDT for pre-approved Korean enterprises; and (4) a quarterly joint monitoring committee. The NTS issued Guidance on Domestic Export-Import VAT Refund Documentation (Notice 2026-33). The resolution is expected to unlock approximately 500 billion KRW in delayed refunds. The NTS will continue assistance via its Hanoi and Ho Chi Minh City tax attachés and pursue similar improvements under the Korea-ASEAN FTA framework.
Sources: NTS News
Secondary Regulatory & Regional Updates
- EITC/CTC Late and Supplementary Application Periods: The NTS reminded taxpayers of the statutory late-filing window (June 1 – November 30) for Earned Income Tax Credit (EITC) and Child Tax Credit (CTC) with a 10% credit reduction, and announced a supplementary period (November 1 – December 1, 2026) for those who missed the May regular window. Credits are fully refundable; maximum EITC is 3.3M KRW (single) / 4.1M KRW (dual-income) plus 1.5M KRW for elderly/disabled; CTC up to 1M KRW per child under 18. Applications via Hometax, Son Tax app, or district tax office. Foreign residents with Korean-sourced earned income are eligible if meeting residency/income thresholds. Fraudulent claims face 5-year ban, repayment with interest, and criminal referral. Newsletter 1185 | Newsletter 1185 (alt) | Supplementary Period Announcement
- Year-End Tax Settlement Preview Service 2026 Enhancements: The NTS launched the 2026 preview service (mid-October 2026 – January 31, 2027) with new real-time deduction optimization engine, AI chatbot for complex scenarios (dual-income allocation, dependent changes, foreign tax credits), and employer dashboard linkage for ERP integration. No statutory rate changes; 2026 brackets (6-45%), basic deduction (1.5M KRW), and special deduction ceilings unchanged. Employers must submit Annual Withholding Tax Payment Record by February 10, 2027; employees finalize settlement by February 28, 2027. Penalties: 0.5%/month (capped 5%) for employer omission; 20% negligence penalty for employee non-filing. Newsletter 1184 | Newsletter 1184 (alt)
- Pre-Announcement of Partial Amendment to Income Tax Office Processing Regulations: The NTS Income Tax Division issued a pre-announcement (20-day comment period) on procedural amendments to streamline income tax assessment, filing, and collection, including electronic filing protocols, documentary evidence requirements, and global income taxation procedures. Affects withholding agents, tax agents, and taxpayers with global income exceeding thresholds. MNCs should monitor changes to year-end settlement and foreign tax credit documentation. Comments due within 20 days from October 21, 2026. NTS Pre-announcement
- SMEs Increasing Employment and Investment Granted Two-Year Tax Audit Exemption: NTS Directive 2026-45 exempts qualifying SMEs from routine audits for two years (H2 2026 and FY2027) if they achieve ≥5% increase in full-time insured employees and ≥10% increase in depreciable asset acquisition costs vs. prior year. Exemption revoked retroactively if thresholds drop. NTS auto-identifies via employment insurance and corporate tax data. ~15,000 SMEs expected to qualify. Does not apply to special investigations for tax evasion, fraud, or profit shifting. NTS News
- First Anniversary of Tax Audit Paradigm Shift: Data-Driven Approach and Roadmap: The NTS reported a 30% reduction in audit selection rate (0.8% to 0.56%) and 15% increase in material evasion detection since launching its AI-driven, risk-based audit model (200+ variables). Key components: AI Audit Selection Scoring Model, Taxpayer Protection Officers, Pre-Audit Consultation program, and Compliance Cooperation Grade for large corps. Three-year roadmap includes enhanced AI for cross-border profit shifting, deeper foreign tax authority cooperation, expanded Self-Correction Incentive Program, and further SME audit burden reduction. Annual Tax Audit Transparency Report to start in 2027. NTS News
- Updated List of Designated Appraisal Institutions for Fair Market Value Denial Cases: The NTS published the current registry (Notice No. 715) of appraisal firms authorized for valuations under Article 52 (Inheritance/Gift Tax Act) and Article 101 (Corporate Tax Act) when transaction prices are denied. Impacts MNEs with intra-group property/share transfers, HNWIs, and practitioners preparing APA/MAP valuations. Reports from non-designated appraisers are inadmissible, triggering deemed valuation (often higher). Taxpayers have 90 days (180 for foreign residents) to file objection with valid appraisal. List effective immediately until next revision. NTS Notice
- 2026 Tax Administrative Support Guidelines for Job-Creating Enterprises: Notice No. 712 clarifies eligibility for employment increase tax credits (RSTA Arts. 29-7, 30) and payment deferral/installment (up to 9/12 months) for corporate tax, VAT, withholding tax. Updates: refined “net full-time worker” definition (excludes subsidized/dispatched), expanded youth permanent employment credits, HomeTax API linkage for employment insurance data. Credits offset up to 50% corporate tax (100% for SMEs). Applications due before statutory tax due dates; post-verification audits target fake employment. NTS Notice
- 2026 Tax Administrative Support Guidelines for Investment-Expanding Enterprises: Notice No. 711 updates investment tax credits (RSTA Arts. 24, 25, 25-2) and payment grace expansions. Key changes: Carbon Neutrality Facility Investment credit integrated into HomeTax dashboard (10-year carryforward); relaxed “business use” proof for Facility Investment Credit (accepts temporary use permits/customs clearance); Tax Payment Grace extended to Customs Duties and Individual Consumption Tax for high-tech strategic industries (semiconductors, batteries, bio, future mobility). R&D credit requires mandatory electronic submission via R&D TCS. Post-management: 5-year business use requirement (3 for SMEs), annual Investment Asset Status Report due February 10 via HomeTax. NTS Notice
Disclaimer: This article is compiled and summarized by the AI based on publicly available information and is for general information purposes only. It does not constitute any form of formal tax advice, legal opinion, or basis for performance. Please consult a qualified professional tax advisor or legal counsel for tax advice.