[Changes Next Year] Increasing Tax Burden for Multi-Homeowners and Reducing It for Ant Investors

Government Publishes Booklet "Changes Starting from 2021"

Multi-homeowners' comprehensive real estate tax rate rises to a maximum of 6%
Stock transaction tax rate lowered

New integrated investment tax credit introduced to overcome COVID-19 and revitalize investment

The biggest topic of 2020 was undoubtedly the real estate frenzy. The sky is splitting in two (stock photo)

[Asia Economy Reporter Joo Sang-don] Starting next year, the top comprehensive real estate tax rate for owners of three or more homes will increase from 3.2% to 6.0%, and the capital gains tax surcharge rate will rise from 20 percentage points to 30 percentage points. On the other hand, the KOSPI securities transaction tax will decrease by 0.02 percentage points compared to this year. This means the tax burden on multi-homeowners will increase, while the tax burden on stock investors will decrease.

First, from January 1 next year, the comprehensive real estate tax rate will increase by up to 2.8 percentage points. Accordingly, the basic tax rate for comprehensive real estate tax will rise from 0.5% to 0.6% for properties valued under 300 million KRW, and from 1.0% to 1.2% for properties valued between 600 million and 1.2 billion KRW. For owners of three or more homes and two homes in designated adjustment areas, the tax rates will increase more steeply. For properties under 300 million KRW, the rate will increase from 0.6% to 1.2%, and for properties between 600 million and 1.2 billion KRW, from 1.3% to 2.2%. For properties exceeding 9.4 billion KRW, the rate will rise from 3.2% to 6.0%. Corporations will be subject to a flat tax rate of 6.0% regardless of property price.

The tax burden cap for owners of two homes in designated adjustment areas will be raised from 200% to 300%, and the tax burden cap for corporations will be abolished. However, to reduce the burden on actual homebuyers with one home, the tax credit rate for elderly owners of one home per household will be increased by 10 percentage points by bracket, allowing those aged 70 or older to receive a 40% deduction. The controversial joint ownership deduction for married couples will allow each spouse to deduct up to 600 million KRW, totaling 1.2 billion KRW, or one spouse can claim the deduction and choose the more favorable option between the elderly deduction or the long-term holding deduction.

The capital gains tax burden for multi-homeowners owning two or more homes in designated adjustment areas will also increase starting June 1 next year. From next year, an additional 20 percentage points will be added to the basic tax rate for owners of two homes, and 30 percentage points for owners of three homes. At this time, pre-sale rights acquired after January 1 next year will also be included in the count of homes when determining multi-homeowner status.

On the other hand, to revitalize the securities market, the transaction tax rate paid by stock investors when selling stocks will be lowered. The KOSPI rate will be reduced from the current 0.1% to 0.08%, and the KOSDAQ rate from 0.25% to 0.23%. This will apply from January 1 next year for transactions through 2022. In 2023, in line with income tax (20-25%) on stock capital gains, the KOSPI transaction tax will be completely abolished to 0%, and the KOSDAQ rate will be further reduced to 0.15%. However, the special rural tax (0.15%) must still be paid separately.

The tax burden on small business owners will decrease. Starting next year, the value-added tax simplified taxpayer threshold will be expanded from the current annual sales of under 48 million KRW to under 80 million KRW. However, the current 48 million KRW threshold will be maintained for real estate rental businesses and taxable entertainment venues. Additionally, newspaper subscription fees will be added to the income deduction targets for credit card and other usage amounts for workers earning 70 million KRW or less. The deduction rate is 30%, and the deduction limit is up to 1 million KRW, including book and performance expenses, museum and art gallery admission fees, etc.

A new integrated investment tax credit will also be introduced. This is a redesign and integration of various investment tax credits with different support targets and levels to overcome COVID-19 damage early and enhance economic vitality. The credit target includes all business-use tangible assets except land, buildings, vehicles, and supplies. The method adds an additional credit (exceeding the average investment amount of the previous three years) to the basic credit (investment amount of the current year). The basic credit rate is 1% for large corporations, 3% for medium-sized enterprises, and 10% for small and medium enterprises. Additionally, a 3% additional credit applies to all companies. Investments related to new growth technologies receive an extra 2 percentage points preferential treatment. In this case, large corporations can receive a 3%, medium-sized 5%, and small and medium enterprises 12% tax credit. The current investment tax credit will be abolished, but investments made in 2020 and 2021 can choose between the current investment tax credit and the integrated investment tax credit. Also, to promote investment and enhance economic vitality, the special accelerated depreciation system for facility investment will be extended until acquisitions made by December 31 next year.

The Individual Savings Account (ISA) will also be fully revamped. Eligibility will be expanded to residents aged 19 or older (and residents aged 15-18 with earned income), and investment in domestic listed stocks will be allowed. The contract period will be relaxed from the existing minimum of 5 years to 3 years, and contract extensions will be permitted. This will apply to subscriptions, extensions, and cancellations from January 1 onward (including existing subscribers).