A new tax penalty on excessive retained earnings was proposed as part of South Korea's 2014 Tax Revision Bill released on 6 August 2014. The tax penalty would be imposed at a rate of 10% on a percentage of net profits of companies with paid-in capital exceeding KRW 50 billion that have not contributed specific amounts for investments, wage increases, and dividend distributions.
There are two methods for calculating the tax, which only includes net profits earned after 2014.
Under Method A, the 10% tax penalty is be applied to 60% to 80% (exact percentage not yet set) of a company's net profit, less investment, salary increases, and dividends distributed
Under Method B, the 10% tax penalty is applied to 20% to 40% (exact percentage not yet set) of a company's net profit, less salary increases, and dividends distributed
For both methods, salary increases for corporate directors or other high-salary employees is not included. Once the method is chosen, it must be applied for a minimum of 3 years.
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