Tax Credit for Research and HR Development Expenses

on Social Insurance Contributions borne by Employer

Korea

Ⅰ. Overview

The ‘personnel expenses' for research and human resources development expenses tax credit mean the expenses paid on offering labor, irrespective of their nomenclature, and the non-taxable income prescribed in the Article 12 of 「Income Tax Act」 shall be included in personnel expenses for researchers.  And it will be reviewed here whether the social insurance contributions borne by employer could be included in tax credit for research and human resources development expenses.

1. Before 2013 (before the Revision)

It is prescribed in the Article 12-3-p of 「Income Tax Act」 that the contributions borne by employer under the 「National Health Insurance Act」, 「Employment Insurance Act」, 「National Pension Act」 or 「Act on Long-Term Care Insurance for the Aged」 are included in non-taxable wage and salary income.  Accordingly, the contribution borne by employer for national pension, national health insurance, employment insurance and long-term care insurance for the aged shall be included in tax credit for research and human resources development expenses before the revision in 2013.

2. On and After 2013 (after the Revision)

It is prescribed in the Article 12-3-p of 「Income Tax Act」 that the contributions borne by employer under the 「National Health Insurance Act」, 「Employment Insurance Act」 or 「Act on Long-Term Care Insurance for the Aged」 are included in non-taxable wage and salary income.  Accordingly, the contribution borne by employer for national pension which is not prescribed after the revision shall not be included in tax credit for research and human resources development expenses.

Ⅱ. Status of Amendment on Relevant Regulations

1. Before Amendment [Feb. 1, 2002]

Article 12 of Income Tax Act 【Non-Taxable Income】

No income tax shall be levied on the following income. <amended, Dec. 27, 2010, July 25, 2011, Sept. 15, 2011, Feb. 1, 2012>

3. Any of the following wage and salary income or retirement income

(p) Contributions borne by the State, a local government, or an employer under the 「National Health Insurance Act」, the 「Employment Insurance Act」, the 「National Pension Act」, the 「Public Officials Pension Act」, the 「Pension for Private School Teachers and Staff Act」, the 「Military Pension Act」, the 「Guarantee of Workers' Retirement Benefits Act」, the 「Korea Scientists and Engineers Mutual-Aid Association Act」 or the 「Act on Long-Term Care Insurance for the Aged」

2. After Amendment [Jan. 1, 2003]

Article 12 of Income Tax Act 【Non-Taxable Income】

No income tax shall be levied on the following income.. <amended, Dec. 27, 2010, July 25, 2011, Sept. 15, 2011, Feb. 1, 2012, Jan. 1, 2003>

3. Any of the following wage and salary income or retirement income

(p) Insurance premium borne by the State, a local government, or an employer under the 「National Health Insurance Act」, the 「Employment Insurance Act」 or the 「Act on Long-Term Care Insurance for the Aged」

3. Current

Article 12 of Income Tax Act 【Non-Taxable Income】

No income tax shall be levied on the following income. <amended, Dec. 27, 2010, July 25, 2011, Sept. 15, 2011, Feb. 1, 2012, Jan. 1, 2003, Mar. 22, 2013, Jan. 1, 2014, Mar. 18, 2014, Dec. 23, 2014, Dec. 15, 2015>

3. Any of the following wage and salary income or retirement income

(p) Insurance premium borne by the State, a local government, or an employer under the 「National Health Insurance Act」, the 「Employment Insurance Act」 or the 「Act on Long-Term Care Insurance for the Aged」

4. Other Relevant Regulation

Commentary Rule 9-8…1 of Restriction of Special Taxation Act 【Definitions of Terms for Research and Human Resources Development Expenses, etc.】

① The definition of the terms and scope of expenses prescribed in the Table 6 of Presidential Decree means either of the following expenses <amended, Feb. 1, 2011>

1. ¨Personnel expenses¨ means the expenses paid on offering labor, irrespective of their nomenclature, and does not include amount for retirement income and contribution to reserve for retirement benefits as prescribed in the Article 22 of 「Income Tax Act」 <amended, Feb. 1, 2011>

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Ⅳ. Conclusion

The personnel expenses for tax credit of research and human resources development expense includes the non-taxable wage and salary income as prescribed in the Article 12 of 「Income Tax Act」.  Accordingly, the social insurance contributions borne by employer under the 「National Health Insurance Act」, 「Employment Insurance Act」 and 「Act on Long-Term Care Insurance for the Aged Pension Act」 are included in personnel expenses of the tax credit for research and human resources development as per the revision of Article 12-3-p in 2013, despite the contributions borne by employer under the 「National Pension Act」, National Health Insurance Act」, 「Employment Insurance Act」 and 「Act on Long-Term Care Insurance for the Aged」 were included in the Article 12-3-p before the revision in  2013.


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