IP Newsletter | Fall 2017
	PATENT
	Income Tax Law Amended, Setting Clear Non-Tax Limits for Employee-Inventor Remuneration
	The Income Tax Law and its Presidential Decree were amended on December 20, 2016 and February 3, 2017, respectively, to set clear guidelines for the tax treatment of employee-inventor remuneration and to define the scope of non-taxation. These amendments apply retroactively to any and all in-service invention remunerations paid beginning January 1, 2017.
	Summary
	Paid DURING Employment Paid AFTER Termination of Employment Earned income; Non-taxable up to KRW 3 million per year Other income; Non-taxable up to KRW 3 million per year
	Key Aspects of the Changes
	The amended Income Tax Law now classifies in-service invention remunerations paid to an inventor-employee under the Invention Promotion Act ("IPA") according to whether it was paid during or after the term of employment.
	Remuneration paid during the term of employment is now treated as earned income, while remuneration paid after the term of employment is other income. The limit of either type of income that may be treated as non-taxable has been set as three million Korean Won (KRW 3,000,000; approx. USD 2,700) per year by the Presidential Decree.
	Background
	Under Articles 2 and 21 of the old Income Tax Law, which applies to remunerations due or paid prior to January 1, 2017, in-service invention remuneration paid to an inventor-employee in accordance with the IPA was theoretically treated as non-taxable other income to the employee.
	Initially, the Korean tax authorities narrowly interpreted this provision to cover only remunerations paid specifically for patent registration, while treating other related remunerations (e.g., for patent filing, or the use, sale and licensing of the invention) as taxable income. It was only after the Supreme Court's decisions1 – holding that all in-service invention remuneration (including remuneration for reservation of patent filing) was non-taxable – that the tax authorities changed their practice to exempt all remunerations paid pursuant to the IPA as non-taxable other income.
	1 Supreme Court Decision 2014Du15559, April 23, 2015; and Supreme Court Decision 2014Du15542, April 9, 2015
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	Mikyung (MK) CHOE mkchoe@kimchang.com Injae LEE injae.lee@kimchang.com
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