Korea to Tax Cash Hoarding

August 7, 2014 Taxation in South Korea

Cash tax KoreaSEOUL – Large companies in Korea may soon face a new tax, as the government pushes wealthy business to distribute more money into the economy.

On August 6th the Finance Ministry of Korea issued a statement confirming that new tax rules will soon be implemented to encourage greater consumer spending by taxing large businesses which choose to hoard cash reserves instead of distributing the funds back into the economy.

Under the new rules, large companies will face a 10 percent tax on their retained earnings, unless they spend at least 60 percent of their net profit on wage increases, new investments or dividend payments.

The new tax is intended to encourage large businesses to spread a greater portion of their profits to employees or new projects, ultimately boosting household incomes, reducing household debt levels, and increasing consumer spending levels.

In order to further encourage consumer spending, the Ministry confirmed that in the near future additional tax changes will be implemented to directly reduce the tax obligations faced by individuals, in order to further boost consumer spending and quell the rise of household debts.

The government expects that the new tax rules will effect approximately 4 000 business, and will be enforced from the start of 2015 for a period of 3 years.

Photo By: Karl Baron