Bill ignoring business reality … Hold the equipment at midnight

The National Assembly holds back the tax on withheld corporate income
Tax on reserves above a certain level
Business investment setbacks and R&D contraction
Virtually no implementation next year

The taxation of excess retained earnings on similar private companies, scheduled to come into effect next year, has been virtually eliminated. Both sides sympathize with raising the issue of the economic community that it restricts the management of not only private corporations of the same kind but also normal corporations.

The Subcommittee of the National Assembly’s Planning and Finance Committee met on the night of the 30th and decided to withhold the amendment to the Special Tax Restriction Act, which introduces taxation of excess retained earnings. The revised bill includes an issue to impose a ‘reserved income tax’ when a company (comparable individual company) with more than 80% stake in the largest shareholder and related persons will exceed 50% of net income or 10 from next year % of equity.

The government has included a bill for taxing withheld income tax in this year’s amendment to the tax law, which states that individual entrepreneurs are increasingly switching to corporations to avoid the highest income tax rate. Currently, the highest income tax rate is 42%, but the highest corporate tax rate is 25%. According to the Department of Strategy and Finance, the tax more than doubles if individual business owners and companies operating real estate leases earn 500 million won rental income each, namely 174.6 million won for individuals and 80 million won for companies. This gap is expected to widen as the amendment to the Income Tax Act, which applies a maximum tax rate of 45% to sections exceeding the tax base of 1 billion won, was passed on this day at the general meeting of the committee.

However, the votes of opposition to government policy have increased, with an emphasis on small and medium-sized companies with a high stake in the largest shareholder. Companies build long-term reserves for R&D and investments in facilities. According to the government change, tax can only be avoided by paying the reserves. It is noted that the government actually enforces dividends. After all, it was the appeal of small and medium businesses that it was difficult to build capital for the growth of the business.

Regardless of the opposition parties, they agreed with the votes of small and medium-sized businesses. In addition, Democratic Party legislature Jeong Seong-ho stated that “a review is needed in view of taxation of unrealized profits, without taking into account the characteristics of individual companies, and the possibility of harm to SMEs”, in the state audit in October. Rep. Jeong Il-young of the same party also asked the Ministry of Information, “In the rules for considering dividends from excess retained income for private and similar businesses, some industries, such as shipping and real estate, have no choice but to raise reserves. building, so they need to be clearly organized.

The opposition was also loud in the power of the people. Rep. Gyeong-joon Yoo insisted at the committee’s 6th general meeting that “in view of corporate objections, such as shrinking investment and interference with overseas U-turn companies,” should be carefully assessed.

Ultimately, it was decided that the revised bill was “pending” by the Subcommittee on Taxes and the proceedings were canceled in the regular National Assembly. Unless the Department of Information and Communications has prepared alternatives, such as restricting applicable industries, it is uncertain to handle the change in the future.

Reporter Mi-Hyun Cho / So-Hyun Kim [email protected]

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