Excluding Real Estate and Entertainment Bars from 1% Tax Credit for Prepayment and Prepurchase

[Asia Economy Reporter Kwangho Lee] Real estate and real estate rental, entertainment bars, finance and insurance, professional services such as legal and accounting businesses are excluded from the industries eligible for the 1% tax credit applied to individual business owners and corporations participating in prepayment and pre-purchase to support small business owners.

The government approved the amendment to the Enforcement Decree of the Restriction of Special Taxation Act at the Cabinet meeting held on the 26th.

The amendment is intended to stipulate matters delegated by the Restriction of Special Taxation Act, which passed the National Assembly on the 29th of last month, containing measures to supplement domestic demand through prepayment and pre-purchase.

Earlier, the government decided that from April to July this year, individual business owners and corporations who prepay or pre-purchase to support small business owners will receive a 1% tax credit on income and corporate tax for the corresponding amount.

There is a proviso that the purchase payment must be made at least three months in advance and each payment must be at least 1 million won to be recognized as prepayment.

Regarding this, the amendment to the Enforcement Decree excludes goods and services supplied by real estate rental and supply businesses, entertainment bars, finance and insurance, and professional services such as legal and accounting businesses from the tax credit application.

Also, payment methods can include cash, credit, debit, prepaid cards, and electronic payment methods. Amounts for goods and services not supplied due to small business owners’ temporary or permanent closure until the end of this year are also included in the deduction target.

To receive the tax credit, applicants must submit a tax credit application form along with prepayment proof documents (cash receipt, credit card sales slip, tax invoice), a prepayment usage confirmation issued by the Ministry of Strategy and Finance, and a small business owner confirmation issued by the Small Enterprise and Market Service to the competent tax office when filing the final income or corporate tax return.

Additionally, the amendment includes provisions related to allowing early carryback of losses in the first half of the year to reduce the tax burden on small and medium enterprises, and stipulates that if there are evasion or errors in the application, a 0.025% daily interest rate will be applied to reclaim the refunded tax amount.