Tax Thursday: Changes in Korea’s foreign tax credit regimes

From January 1, 2021, there have been changes in the Korean corporate income tax law (CITL) with regard to the foreign tax credit regimes.

Background:

A company can claim a foreign tax credit for foreign taxes paid or to be paid in relation to its foreign source income within the credit limit. Before 2021, unused foreign taxes in excess of the credit limit could be carried forward for the next 5 years. From 2021, the 5 year carryforward period has been extended to 10 years in order to improve effort to strengthen a relief for double taxation of foreign source income.

In addition, for foreign tax credits which are not used during the carryforward period, taxpayers will be allowed to deduct the unused tax credit balance from taxable income for the year immediately following the year in which the carryforward period ends.

To Do:

All multinational companies should pay close attention to the recently amended provisions of CITL in relation to the foreign tax credit regimes to eliminate double taxation and maximize their after-tax income

If you have any questions, please contact Kyung Su Han, Tax Partner at Crowe Korea or S Y Lee, Tax Director at Crowe Korea