South Korea has unveiled a wide-ranging 2026 Tax Revision Bill, combining new incentives for strategic industries and regional investment with significant reforms to real estate taxation, international tax rules and tax enforcement.
Published by the Ministry of Finance and Economy on 3 August 2026, the package is structured around four policy priorities: supporting potential growth, assisting households and regional development, advancing a fairer tax system, and modernising tax administration.
The scale of the proposal makes it considerably more than a routine annual tax adjustment. The government is using the tax system simultaneously to support high-tech manufacturing, encourage investment outside the Seoul metropolitan area, reshape property taxation and strengthen compliance.
At the same time, the proposed real estate measures have emerged as one of the most politically sensitive parts of the package, with reported public opposition putting pressure on the government to reconsider elements of the reform.
New Domestic Production Tax Credit for Strategic Industries
One of the most significant business measures is the proposed introduction of a domestic production tax credit.
Individual and corporate income tax credits would be available based on production volumes for products where South Korea considers its domestic production base to be insufficient.
The eligible areas identified by the government include:
- semiconductors;
- secondary batteries;
- critical materials;
- solar power generation equipment;
- wind power generation equipment; and
- AI and robotics components.
The credit is proposed to remain available through 31 December 2036, giving the measure an unusually long investment horizon.
The package would also broaden the scope of national strategic technologies, including an expansion of the hydrogen category into a wider future-energy category covering technologies and facilities such as small modular reactors (SMRs) and micro modular reactors (MMRs).
Other business measures include VAT input tax recovery for autonomous passenger vehicles used for R&D, corporate income tax support for restructuring in the petrochemical sector and special tax treatment for qualifying coastal shipping companies.
Stronger Regional R&D and Investment Incentives
The Bill also seeks to use the tax system to address the economic concentration of activity in the Seoul metropolitan area.
Existing R&D and integrated investment tax credits would be adjusted using regional multipliers.
The proposed adjustment factors are 1.0 for the Seoul metropolitan area, 1.1 for non-capital metropolitan cities and provinces, 1.3 for other non-capital regions, and 1.5 for designated preferential non-capital regions.
This means the geographical location of an investment could become materially more important when businesses model the effective value of Korean tax incentives.
The government also proposes preferential tax relief for employees of SMEs working in regional areas, income tax exemptions for certain relocation allowances and additional measures supporting businesses established or relocated in designated development zones.
SME and Venture Tax Measures
The package includes several measures aimed at reducing the tax consequences of businesses growing beyond SME status.
Currently, certain benefits cease after a five-year grace period following graduation from SME status. The government proposes an additional three-year phase-out period, during which reduced benefits would continue to apply.
The measure covers the special tax reduction for SMEs as well as credits for video and webtoon production costs.
Venture investment incentives would also be expanded by increasing the age limit for qualifying venture companies from seven to ten years after establishment. Accelerated depreciation would meanwhile be introduced for qualifying SME investment in safety facilities.
Property Tax Reform Shifts the Focus to Actual Residence
The most politically sensitive element of the Bill is likely to be the proposed overhaul of residential property taxation.
A central theme is a shift away from tax benefits based primarily on the period of ownership toward benefits linked more closely to the period of actual residence.
For capital gains tax purposes, the existing long-term holding deduction for residential properties would become a long-term residence deduction. The current ownership-based approach would therefore be replaced by a residency-based system intended to favour owner-occupiers.
The government also proposes a cap on the deduction of KRW 2 billion in 2028, falling to KRW 1 billion from 2029 onwards, with phased implementation following a one-year grace period.
Importantly, the proposal recognises that absence from a property does not always mean it should cease to qualify as a residence. Certain periods of non-residence could therefore be treated as residence where caused by qualifying circumstances such as education, job relocation, long-term medical treatment, specified overseas stays or caring for older parents.
Comprehensive Real Estate Holding Tax Changes
The Comprehensive Real Estate Holding Tax (CRET) would also undergo substantial reform.
For single-home households, the tax would apply to homes with an officially assessed value above KRW 1.4 billion, which the government indicates corresponds approximately to a KRW 2 billion market value.
The basic deduction would become dependent on occupancy. For owner-occupied homes, it would increase from KRW 1.2 billion to KRW 1.4 billion. For homes not occupied by their owners, it would instead fall from KRW 1.2 billion to KRW 900 million.
The fair-market-value ratio would increase from 60% to 70% from 2027 for single-home households and households owning one or two homes in non-capital regions.
The CRET liability cap would meanwhile increase from 150% to 200%.
The existing holding-period credit for single-home households would also be replaced with a residency-period credit, subject to a proposed cap of KRW 8 million in 2027 and KRW 6 million from 2028.
The proposals therefore represent a broader structural shift: Korean residential property taxation would increasingly distinguish between ownership and genuine occupation.
Relief for Long-Term Residents and Older Homeowners
The reform is not exclusively tax-increasing.
For qualifying single homes occupied by their owners for at least ten years and sold for KRW 3 billion or less, the annual basic capital gains tax deduction would rise sharply from KRW 2.5 million to KRW 25 million.
Temporary special capital gains tax treatment is also proposed for older owner-occupied single-homeowners.
Other measures would expand preferential treatment for certain second homes in regional areas and temporarily ease higher capital gains tax rates applicable to multi-homeowners in designated adjustment areas during 2027–2028.
Nevertheless, the combination of higher CRET parameters and a stronger residence requirement has triggered reported concerns among owners of high-value properties, older homeowners and individuals who own a single home but temporarily reside elsewhere.
International Tax: CFC Rules Align With the 15% Global Minimum Tax
The international tax changes are comparatively targeted but important for multinational groups.
South Korea proposes adjusting the effective tax rate threshold used to determine Controlled Foreign Corporation (CFC) status to 15%, explicitly aligning it with the Global Minimum Tax.
The Bill would also bring Qualified Domestic Minimum Top-up Tax (QDMTT) within the scope of Korea’s foreign tax credit regime.
These measures further integrate Korea’s domestic international tax architecture with the emerging Pillar Two framework and will be relevant to groups reviewing the interaction between CFC taxation, foreign tax credits and minimum-tax liabilities.
Offshore Trust Reporting Penalties Increase Tenfold
Offshore trusts are another notable enforcement priority.
The government proposes introducing rewards for reporting failures to submit required offshore trust statements.
More significantly, the maximum administrative fine for failure to comply with offshore trust reporting requirements would increase from KRW 100 million to KRW 1 billion — a tenfold increase.
The size of the proposed increase indicates that offshore trust transparency is becoming a substantially higher compliance risk for affected taxpayers and advisers.
Foreign Workers Face a Higher Preferential Tax Rate
The Bill would also modify Korea’s preferential individual income tax regime for foreign workers.
The preferential rate would rise from 19% to 21%, with the government citing tax equity between foreign and domestic workers. At the same time, the regime would be extended for another three years, through 31 December 2029.
Multinational employers may therefore need to reassess assignment costs, tax equalisation arrangements and the comparative benefit of the preferential regime once the changes become effective.
Rationalisation of More Than 100 Tax Expenditure Programs
Another significant feature of the reform is its proposed review of Korea’s extensive tax incentive system.
The government intends to rationalise 115 out of 241 tax expenditure programs. The proposals include terminating 20 measures, converting 17 tax incentives into direct fiscal support and restructuring 64 measures.
Among the measures scheduled for termination or restructuring are incentives relating to hybrid vehicles, VAT refunds for accommodation supplied to foreign tourists, electric and hydrogen vehicles, mortgage interest deductions and various investment and employment credits.
The exercise reflects a broader attempt to redirect tax expenditures toward measures the government considers more effective while increasingly using direct expenditure rather than tax relief for certain policy objectives.
A Tax Package With Several Policy Objectives
South Korea’s 2026 Tax Revision Bill attempts to pursue several objectives at once.
For businesses, the headline measures are the new production-based incentives for strategic industries, stronger regional investment credits and expanded support for SMEs and venture businesses.
For multinational groups, the 15% CFC threshold and QDMTT foreign tax credit treatment further connect domestic Korean tax rules with the Global Minimum Tax framework.
For individuals, however, the property tax reforms could be considerably more visible. Moving from ownership-based to residence-based relief, increasing the CRET fair-market-value ratio and raising the liability cap could materially change the tax position of certain homeowners.
And for taxpayers using offshore structures, the proposed KRW 1 billion maximum offshore trust reporting penalty significantly raises the compliance stakes.
The Ministry of Finance and Economy presents the package as part of a broader strategy to support Korea’s next phase of economic growth. Whether all of its more politically sensitive measures survive the legislative process in their current form will now be an important issue to watch.