"2009 Income Tax Guide for Foreigners"
dcf29e4d-bea1-4a76-ba6b-9c07ea8c13a5.doc / 1page 「Serving Taxpayers」, The NTS made its utmost efforts to provide foreign taxpayer-friendly service in 2008. We will continue to strive to create foreign business-friendly tax environment. - 2008 Performance on 「Serving Taxpayers」- 1. Sustainable Taxpayer Trust in National Tax Administration 2. Fairness in Taxation with Establishment of Tax Compliance Atmosphere 3. Innovation in Tax Audits for Taxpayer-friendly Audit 4. Substantial Reduction of Taxpayer Burden 5. Introduction of Private-sector Management Tactics for Customer-oriented Tax Administration 6. Better Tax Service for Foreign Taxpayers dcf29e4d-bea1-4a76-ba6b-9c07ea8c13a5.doc / 2page - 2008 Performance on 「Serving Taxpayers」- Target Achieving Global Excellence in Tax Administration ▲ Fostering foreign Creating taxpayer- Establishing culture of business-friendly tax Direction customized value in serving taxpayers environment to attract tax service foreign investment Taxpayer trust in national tax Tax infrastructure for compliance administration - Taxpayer trust evaluation - e-cash receipt system to complement - Taxpayer Advocacy Committee cash receipts - Volunteering - Culture of advanced taxation Innovation in tax audit Reduction of Taxpayer burden - Committee for Selection and - Regular measurement and reduction Deliberation of Tax Audit Subjects method of compliance cost - Redesigning tax audit procedure - Advance Ruling System for taxpayer-friendly audit Customer-oriented tax administration Foreign taxpayer-friendly service - Resolution of difficulties in tax matters - Voice of customers (VOC) system -「Foreign Taxpayer Service Desk」and - Taxation quality improvement English-versioned tax data dcf29e4d-bea1-4a76-ba6b-9c07ea8c13a5.doc / 3page Sustainable Taxpayer Trust in National Tax 1 Administration ◈ The NTS strived to earn sustainable taxpayer trust, by implementing Taxpayer Trust Evaluation Model, operating Taxpayer Advocacy Committee and doing volunteer activities for the community. �� The NTS implemented 「Taxpayer Trust Evaluation」 where taxpayers provide evaluation on the performances of the NTS on national tax administration. ㅇ The NTS developed 「Trust Evaluation Model」for the first time as government organization to evaluate the performances of the NTS on tax administration from the taxpayers' perspective, not from the NTS' perspective. * The NTS conducted a sample survey on 7,000 taxpayers to measure taxpayers' comprehensive trust in the organization. ㅇ The evaluation results generated by type of work and each tax offices were used to form strategies to follow the NTS' motto of 'Serving Taxpayers' and to improve national tax administration. * In 2008, the NTS focused its administrative capability on improving taxpayer trust and as a result, the comprehensive trust increased to 71.8, 9.3 point up from 2007. �� The 「Taxpayer Advocacy Committee」 resolved difficulties in taxation from taxpayers' perspective. ㅇ In May, 2008, the Taxpayer Advocacy Committee whose majority members are outside experts was set up at district tax offices nationwide, and the members were guaranteed to have independent status so that they can protect taxpayers' rights without outside influence. The head of the Committee was selected among the outside members. dcf29e4d-bea1-4a76-ba6b-9c07ea8c13a5.doc / 4page * In regional tax offices, the Committee consists of 5 outside members and 4 NTS staff, and in district tax offices, the Committee is made up of 4 outside members and 3 NTS staff. ㅇ Since the Committee was put in place, all the complaints have been reviewed comprehensively, and approvals of the Committee have been sought before extending audit duration or expanding audit scope. * Since the Committee was established in May, 2008, the cases of extended tax audits decreased by 86% compared with the number of cases before the Committee, which indicates that the Committee has been firmly established as organization of taxpayer rights protection. �� The NTS keeps evolving to become a governmental organization that directly communicates with the public through continuous 「volunteer activities」. ㅇ The NTS is putting into action the spirit of 'sharing and serving' through its volunteer activities for the society, giving hope to the poor and the vulnerable and creating an atmosphere where people care about each other. ㅇ The NTS founded a volunteer group, established cooperative partnership with expert organizations, implemented a social contribution program and conducted volunteer activities that directly reached out to the isolated. * As of Dec., 2008, the NTS volunteer group has been involved in 2,779 kinds of volunteer work with 36,507 staff participated. dcf29e4d-bea1-4a76-ba6b-9c07ea8c13a5.doc / 5page Fairness in Taxation with Establishment of 2 Tax Compliance Atmosphere ◈ The NTS has continuously expanded taxation infrastructure such as the cash receipt system to enhance transparency of tax base, and made efforts to encourage voluntary tax compliance. �� The NTS boosted transparency of tax base by expanding taxation infrastructure in a sustainable manner. ㅇ To promote the cash receipt system, the NTS encouraged people to use cash receipts in their daily transactions and expanded the scope of eligibility for issuance. * In 2008, the total value of issued cash receipts was 61 trillion won, 22% up from the previous year, and the number of issued cash receipts 2.9 billion, 93% up from the previous year. ㅇ The NTS will reduce compliance costs and prevent people from receiving fake tax invoices by introducing the electronic tax invoice system, a new type of taxation infrastructure. * Corporate businesses will be obligated to issue electronic tax invoices starting 2010. �� The NTS strengthened its tax base management to encourage voluntary tax compliance. ㅇ The revenue body concentrated its managing efforts on the high income earning self-employed whose tax bases have been difficult to track and trace. ㅇ The Tax Office also strengthened electronic analysis on unfair deduction, rebate or false booking of expenses, and executed newly revised and improved laws and regulations such as imposing penalty taxes (40%) for non-compliance. * The amount of reported global income taxes attributable to 2007 was increased 19% compared with the previous year. Tax base for VAT filing in the 1st half of 2008 was up 20% from the same period of 2007. dcf29e4d-bea1-4a76-ba6b-9c07ea8c13a5.doc / 6page Increase Rate of Income Amount vs. of Nominal GDP Increase Rate of Income Amount Increase Rate of Normal GDP 2004 2005 2006 2007 �� The NTS created a culture where compliant taxpayers are respected. ㅇ The revenue body continuously expanded preferential tax benefits for compliant taxpayers to make them feel rewarded for and proud of paying taxes. * The number of people who can use the exclusive airport immigration desk increased to 769 in June, 2008 from 252 in the previous month. * The amount exempt from security for tax payment was revised upward from 300million to 500million won in July 2008. * The suspension period for tax audits was expanded, starting December, 2008. For those who are awarded a citation from NTS commissioner and/or higher government officials, the suspension period was extended from the previous 2 years to 3 years, and for those awarded a citation from the head of regional tax office and/or lower government officials, the suspension period extended from the previous 1 year to 2 years. ㅇ The NTS granted tax points based on the tax amount paid by individual taxpayers and provided preferential benefits according to the tax points. * Tax points can be used as security for tax payment. * The taxpayers with tax points can handle their tax matters quickly by using 'Desk for Compliant Taxpayers Only' at the Taxpayer Service Center of district tax offices * One tax point is granted per 100,000 won of voluntarily paid tax amount and 0.3 point for notified tax amount. ㅇ To raise public awareness of taxes, various tax-related education materials were created and distributed. dcf29e4d-bea1-4a76-ba6b-9c07ea8c13a5.doc / 7page 3 Innovation in Tax Audit for Taxpayer-friendly Audit ◈ The NTS overhauled tax audits from taxpayers' perspective to make sure that compliant companies concentrate on their business activities without having to worry about tax audits. �� The NTS improved objectivity and transparency in selecting subjects of tax audits. ㅇ The 「Committee for Selection and Deliberation of Tax Audit Subjects」 was set up to review and confirm the selection criteria of audit subjects. * The Committee consists of 6 outside members including lawyers, tax accountants or professors and 5 NTS staff. Major audit selection criteria reviewed and confirmed by the Committee through 3 meetings • New growth engine industries such as the green industry and job-creating companies exempt from tax audit • Percentage of companies selected for tax audit reduced from 0.8% to 0.7% • Participation of outside members in randomly selecting audit subjects, and release of the selection result to the press �� The overall audit procedure was redesigned to reduce uncertainty in tax audit. ㅇ Green Book, a summarized manual on processing tax audit work, is provided when the advance notice of tax audit is issued. ㅇ Before tax auditing, an orientation is held to explain selected audit subjects why they are selected for audit and how the audit will proceed. ㅇ During the auditing, an intermediary explanation session is held to provide an update of the audit so far. dcf29e4d-bea1-4a76-ba6b-9c07ea8c13a5.doc / 8page ㅇ After the audit, tax consulting and Happy Call service are provided. Before audit During audit After audit -Orientation - Tax consulting - Intermediary explanation -Green Book provided - Happy Call ＊the Happy Call is a system under which a person in charge of taxpayer advocacy expresses his/her appreciation on the phone for taxpayer's cooperation in tax audit and monitors inconvenience and complaints generated during the audit. �� The complaints made by taxpayers were taken into account and reflected on improving tax audit procedure. ㅇ The number of audits conducted in 2008 stood at 18,300, 5.2% down from the previous year. * The number of audits were 25,944 in 2005, 22,441 in 2006 and 19,302 in 2007. ㅇ The duration of tax audit was minimized to the level absolutely necessary for the purpose of audit. * The Taxpayer Advocacy Committee whose majority members are from the outside reviews whether the audit duration should be extended or not. ㅇ Simplified tax audits that focus on providing useful tax consulting are more in use, rather than traditional audits that place more emphasis on imposing taxes. ＊ The number of simplified tax audits increased from 369 in 2006 to 485 in 2007 and to 600 in 2008. ㅇ The period of advance notice of tax audits for foreign and foreign-invested companies is extended from the previous 10 days to 15 days, lightening their burden on preparing tax audits. dcf29e4d-bea1-4a76-ba6b-9c07ea8c13a5.doc / 9page �� The way of conducting tax audits was changed to contribute to economic revitalization and job creation. ㅇ For SMEs, considering that they had trouble with capital financing due to the unstable financial market and rising foreign exchange rates, regular tax audits were suspended until the financial market is stabilized. ㅇ Companies related to new growth engine industries such as green industry and SMEs that create jobs more than 10% percent in the 1st half of 2008 compared to the previous year will be exempt from regular tax audits. ＊ New growth engine industries refer to 22 industries that are divided into 6 categories such as energy․environment, biotechnology and etc. dcf29e4d-bea1-4a76-ba6b-9c07ea8c13a5.doc / 10page 4 Substantial Reduction of Taxpayer Burden ◈ By reducing tax compliance cost and implementing the Advance Ruling System, the NTS minimized taxpayer burden arising from other than tax payment itself, encouraging the public to comply with tax liability. �� The NTS measured 「tax compliance cost」 scientifically and came up with ways to substantially reduce the cost. ㅇ A Korean-specific measurement model was developed based on the OECD Standard Cost Model to measure tax compliance cost and seek ways to detect where the cost is generated excessively and reduce it. ㅇ Laws, regulations and practices that generated compliance cost throughout the national tax administration such as tax filing and payment, tax audit and appeal procedure have been found and revised from taxpayers' perspective. * There is the total of 46 revision cases, 23 selected within the NTS and 23 selected by taxpayers. Components of compliance cost Ways to reduce compliance cost • Book Keeping cost • e-tax invoice e-Lbay • e-Governmentㆍ i r r ⇨ vi e ser c • Tax return preparation • Expanded Simplified e-filing • Simplification of tax forms and cost ⇨ service reduction of required documents • Tax information acquisition • Upgraded National Tax Law • Advance Ruling System cost ⇨ Information System • Response-to-audit and • Revision of Cost-generating • Six Sigma Methodology appealing cost ⇨ systems and practices and VOC dcf29e4d-bea1-4a76-ba6b-9c07ea8c13a5.doc / 11page �� The NTS implemented the 「Advance Ruling System」 to spare companies from tax-related problems. ㅇ Under the Advance Ruling System implemented in October, 2008, if a taxpayer asks a question about whether a certain transaction is taxable or not with an accurate sets of facts and circumstances provided, the NTS provides a clear answer applicable only to that specific transaction. ＊The answer is binding to the NTS so as to prevent the taxpayer from receiving disadvantageous treatment. ㅇ Through the System, the NTS reduced uncertainty in tax matters and improved predictability in business activities, expediting decision-making process and revitalizing business investment. �� The NTS worked hard to allow companies to focus their time and energy on their business management under the difficult economic circumstances. ㅇ Sessions were held where NTS Commissioner paid an on-site visit to companies, listened to the voice coming from workers, and expediently resolved issues raised by those companies. * As for 2008, 46 cases of proposals made by companies were adopted on the spot and implemented immediately. ㅇ The Tax Mentoring Program has been adopted in January, 2009, and under the program, companies related to new growth engine industries such as green industry and venture businesses receive one-on-one customized service throughout the overall tax administration including tax-filing and payment, tax audit and appeal request. * The number of companies eligible for the Program are 2,328 related to new growth engine industries and 14,073 venture SMEs. dcf29e4d-bea1-4a76-ba6b-9c07ea8c13a5.doc / 12page Introduction of Private-sector Management Tactics 5 for Customer-oriented Tax Administration ◈ The NTS introduced management tactics such as the Voice of Customers System and Six Sigma methodology, quickly responding to the public needs and spreading the mind-set of customer-oriented service throughout the organization. �� Customer-oriented tax administration has been realized through the comprehensive management of customer voices. ㅇ By setting up the 「Voice of Customer System (VOC)」 in July, 2008, the NTS systematically managed various customer voices including taxpayer's complaints, tax-related difficulties and proposals. - The NTS set up a database to analyze customer voices by type of complaint, type of cause and type of taxpayer on a real-time basis and improved systems and practices that were the root cause of complaints. ＊As of the end of Dec., 2008, 65,000 customer voices were collected and processed and among them, 53,000, or 82%, were accepted and 188 revisions made on relevant systems and practices. �� The NTS continuously strives to improve taxation quality to reduce the number of over-assessments. ㅇ Under the recognition that high quality taxation is the best service, the NTS constantly focuses on reducing the number of over-assessments (i.e., number of cases lost/number of appeals), by improving taxation quality through such efforts as the implementation of the Taxation Quality Evaluation System. ＊ The number of over-assessments stood at 70 per 10,000 tax payments in 2007. The NTS is aiming to reduce the number to 35 per 10,000 in 2009. dcf29e4d-bea1-4a76-ba6b-9c07ea8c13a5.doc / 13page ㅇ Achievement in 2008 - The Taxation Quality Evaluation System was set up and implemented. - Six Sigma methodology was applied to 18 issues where taxpayers most frequently disagree with the NTS, and alternative measures were come up with. * For example, revisions were made in the way of estimating individual income tax and corporate income tax and in the way of treating 8 year self-cultivating farmland for capital gains tax purposes. dcf29e4d-bea1-4a76-ba6b-9c07ea8c13a5.doc / 14page 6 Better Tax Service for Foreign Taxpayers ◈ The NTS corrected unclear or unreasonable taxation standards to encourage foreign investment and provided foreign taxpayer-friendly services to address language problems. �� The NTS has carefully listened to foreigners' tax-related complaints and reflected them on relevant laws and regulations. ㅇ The NTS established the 「Committee on Improvements to International Tax Law」, came up with improvement measures in line with global taxation standards from the taxpayers' perspective and submitted the improvement proposals to the Ministry of Strategy and Finance. * In 2008, 20 proposals were submitted to the MOSF and 15 accepted. (For example, the application period to extend the corporate tax filing duration for foreign corporations was expanded from the previous 45 days to 60 days.) ㅇ Sessions are being held with foreign business associations stationed in Korea to continuously collect and resolve tax-related issues. * In 2008, some of proposals made by foreign companies during each session with AMCAHM and with EUCCK were accepted. (For example, the period of advance notice of tax audit for foreign companies was extended from the previous 10 days to 15 days.) �� The NTS provided foreigner-friendly tax service to resolve inconvenience and remove language obstacle for foreign taxpayers. ㅇ The 「Foreign Taxpayer Service Desk」 was set up at district tax offices most frequently visited by foreign taxpayers to provide one-stop tax service. dcf29e4d-bea1-4a76-ba6b-9c07ea8c13a5.doc / 15page * The NTS implemented the Service Desk on pilot test in 10 DTOs in Feb., 2008, expanded the Desk to 20 more DTOs in July, 2008 and again increased the number of DTOs with the Service Desk to 45 in total on Mar.2nd, 2009, covering 80% of foreigners' tax affairs. ㅇ Various English-versioned tax information was provided and released on the NTS website. * In 2008 alone, various publications were released including 「Foreign Taxpayers' Guide to Korean Taxes」, the 「Guide to Global Income Tax Filing 」and 「Easy Guide for Foreigners' Year-end Tax Settlement」, and the 「Manual on Processing Tax Audit Work」 was posted on the NTS English website. �� The NTS provided foreigner-friendly tax services by issuing tax-related certificates in English and translating documents into English. ㅇ English certificate issuance services were expanded from the previous 6 forms to 8. * Tax Clearance Certificate, Certificate of Business Registration, Certificate of Business Suspension/Close of Business, Certificate of Income, Certificate of Tax Payment, Certificate of Tax Base on VAT, Certificate of Income of VAT-exempt Business ㅇ English application forms and other required documents for application were posted on the NTS website. * Withholding Tax Receipt, Retirement Income Withholding Receipt, Application Form for Business Registration, VAT Return, Statement of Overseas Subsidiary, Statement of Overseas Subsidiary's Financial Condition, Statement of Overseas Branch �� The NTS boosted predictability of transfer pricing for foreign companies by promoting APA. dcf29e4d-bea1-4a76-ba6b-9c07ea8c13a5.doc / 16page ＊ APA is a system where the tax authority approves the arms' length price computation method of a taxpayer to be used in international transactions with foreign companies in special relations. ㅇ The time to conclude an APA was dramatically shortened since the APA procedure was managed strictly. ＊ The average time to conclude an APA was 2 years and 4 months for the past three years until 2007, but reduced to 1 year and 10 months in 2008. ㅇ Taxpayer convenience was improved by holding APA sessions, publishing APA Annual Report, and operating an on-line search functions to allow taxpayers to check the status of APA procedure. ⇒All these efforts proved successful when the NTS was chosen as recipient of the 2008 "Globalized Partner" award, the highest recognition granted by EUCCK in December 2008.