2026 Tax Revision Bill - Summary of Key Highlights for Foreign-Invested Entities

On August 3, 2026, the Ministry of Finance and Economy (“MOFE”) convened the Tax Development Deliberation Committee and announced the 2026 Tax Revision Bill. While the 2025 Tax Revision Bill sought to promote both technology-driven growth and greater tax transparency, this year's bill places greater emphasis on supporting a rebound in Korea's potential growth rate, assisting low- and middle-income households, reforming taxation to promote greater fairness, and rationalizing the tax system to improve taxpayer convenience. 

The bill also includes further updates to the Global Minimum Tax rules, which have been progressively legislated since their initial introduction in 2022. By incorporating the Pillar Two changes agreed under the OECD/G20 Inclusive Framework into its domestic legislation, Korea continues to align its Global Minimum Tax regime with the relevant international standards. RSM Korea plans to issue a separate follow-up Newsletter providing more detailed guidance on the practical Global Minimum Tax compliance obligations expected to arise during 2027.

This RSM Korea Newsletter highlights and summarizes those proposals that are expected to be of particular interest and practical relevance to foreign-invested companies in Korea. Please note that the Tax Revision Bill may undergo changes during the National Assembly’s review process. Once finalized and ratified by the National Assembly, which is anticipated to occur in December 2026, the Tax Revision Bill will only take full legal effect.  

■ Amendment:  Threshold for entertainment expenses deductible without formal supporting documents increased from KRW 30,000 to KRW 50,000 per transaction 

To enhance taxpayer convenience and better reflect current business practices, the threshold for ordinary entertainment expenses that are deductible without “Qualified Evidence” (i.e., formal supporting documents stipulated by the regulations) will be increased from KRW 30,000 to KRW 50,000 per transaction. (For congratulatory and condolatory payments, the threshold will be increased from KRW 200,000 to KRW 300,000 per transaction.) 

 

■ Effective Date: Applies from the tax year in which the enforcement decree takes effect 

As of August 2026, the specific tax year of application has not yet been finalized. Companies should therefore continue to monitor the legislative progress of the amended Enforcement Decree.

RSM Korea View 

Business promotion expenses exceeding the applicable threshold without qualified supporting documentation are non-deductible for corporate income tax purposes and are therefore a tax reconciliation item in corporate income tax filings.

Note, however, that this amendment only raises the threshold amount — the requirements for formal supporting documents (credit card sales slips, cash receipts, tax invoices, etc.) and the deduction cap based on revenue remain unchanged. 

■ Amendment: Withholding tax rate on certain personal service business income reduced to 2.2% 

To support low- and middle-income taxpayers, the withholding tax rate applicable to certain personal service business income earned by freelancers, sole proprietors, and similar individual service providers will be reduced from 3.3% (3.0% income tax + 0.3% local income tax) to 2.2% (2.0% income tax + 0.2% local income tax). 

■ Effective Date: Applies to income paid on or after January 1, 2027 

This will apply starting with income paid in January 2027, which is generally reported and paid by February 10, 2027. 

RSM Korea View 

Withholding tax on business income paid to individuals providing personal services, including freelancers, is one of the most frequently encountered withholding obligations for companies, together with withholding tax on employment income. Please take note of this amendment and its effective date, and ensure in advance that the correct withholding rate is applied. 

■ Amendment: Special flat tax rate increased from 20.9% to 23.1% 

To improve tax equity, the preferential flat income tax rate available to qualifying foreign workers will be increased from 20.9% (19.0% income tax + 1.9% local income tax) to 23.1% (21.0% income tax + 2.1% local income tax). 

 

■ Effective Date: Applies to income arising on or after January 1, 2027 

This will apply to income arising on or after January 1, 2027 — that is, withholding will begin with the January 2027 payroll. 

 

RSM Korea View 

2.2% increase in the flat tax rate can meaningfully change the net take-home pay (after withholding) of foreign employees and executives electing this special taxation. Depending on income level, applying the progressive comprehensive income tax rates instead of the special flat rate may become more favorable for certain individuals following this amendment. Companies should notify affected employees in advance so there is no disruption to payroll administration or to individual foreign employees’ or executives’ personal cash flow and financial planning. 

■ Amendment: Scope of administrative fines for failure to submit international transaction documentation clarified to include submissions containing material omissions or errors 

Under the current International Tax Adjustment Act, administrative fines apply only where a taxpayer fails to submit required international transaction documentation (such as international transaction statements or transfer pricing method reports) by the deadline, or submits false documentation. Under this amendment, administrative fines will also apply where documentation is submitted on time but contains material omissions or errors. 

 

■ Effective Date: Not yet confirmed — the Tax Revision Bill does not specify an effective date

The amendment is generally expected to apply from the date the revised enforcement decree takes effect, but this remains subject to confirmation, as it may change depending on the outcome of National Assembly deliberations. 

 

RSM Korea View 

Korean corporations engaging in international transactions with foreign related parties and therefore subject to international transaction data submission requirements should pay particular attention not only to meeting the applicable deadlines but also to ensuring the accuracy and completeness of the submitted data.

The proposed amendment expressly clarifies that an administrative fine may be imposed even where the relevant data is submitted on time if the submission contains material omissions or errors.

Before the amended provisions take effect, companies should review:

• the criteria and data sources used to compile the required information;
• the classification of transaction types and foreign related parties;
• the reconciliation between accounting records and the prescribed submission forms; and
• the internal review and approval procedures applied before submission.

Where necessary, companies should conduct an advance review with their tax advisors to verify the accuracy, completeness and internal consistency of their international transaction data and the consistency of such data across the relevant statutory submission forms.

■ Related Materials

▪ Ministry of Finance and Economy, Press Release (August 3, 2026), “2026 Tax Revision Bill”

2026 Tax Revision Bill | Press Release | Ministry of Finance and Economy

https://english.mofe.go.kr/pc/selectTbPressCenterDtl.do?boardCd=N0001&seq=6455

This material is based on the Ministry of Finance and Economy press release dated August 3, 2026, and has been summarized and edited by Shinhan Accounting Corporation (RSM Korea) to help corporate tax personnel understand the key changes. Please consult your tax advisor regarding the application of these provisions to your specific circumstances.