Based on the recent tax law amendment and the proposed tax law amendment announced, two important items related to the global mobility area is introduced in this alert, i) new employer filing obligation for stock-based compensation, and ii) change in tax residency test for an individual.
Under the 2023 tax law amendment, effective January 1, 2024, local subsidiaries or branches of foreign companies, as well as domestic business establishments of foreign companies in South Korea, are required to submit a detailed transaction report on stock-based compensation issued to their executives and employees, provided that these foreign corporations are controlled by foreign shareholders.
Where executives or employees receive or exercise stock-based compensation, for example, stocks, stock options, or bonuses given in money equivalent to the share value, granted by the foreign parent company, the local subsidiaries or branches should submit the report with following information;
This report must be filed by March 10 of the year following the tax year in which the stock-based compensation is exercised or paid, and the due date of the first filing to report the transactions in 2024 is March 10, 2025.
Currently an individual is considered as a tax resident of Korea if the individual has a domicile in Korea or has an abode in Korea for at least 183 days during the one taxable year, which is calendar year in Korea. However, according to the proposal of tax law amendment announced by the Ministry of Economy and Finance (MOEF) of South Korea, an individual will be considered as a tax resident of Korea if the individual consecutively has an abode in Korea for at least 183 days during any two taxable years.
Additionally, the proposed tax amendment bill specifies the criteria for residence period test. Currently, the residence period is calculated as the period from the day after the arrival date to the departure date, and the temporary departure period is included in the 183-day test. The proposed bill specifies the qualified reasons of temporary departure including i) personal reasons such as tourism, medical treatment, or visiting families and relatives; ii) business reasons such as business trips or professional trainings; and iii) other similar reasons.
If this proposed tax law amendment bill is approved by National Assemble by end this year, it will be applicable to taxable periods starting on or after January 1, 2026.
For a deeper discussion on the above, please reach out to your Vialto Partners point of contact, or alternatively:
Danielle Suh
Partner
Na Young Hwang
Director
Further information on Vialto Partners can be found here: www.vialtopartners.com
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