[Enforcement Decree of the Tax Act] Tax Benefits Require More Than Half Investment in New Deal Infrastructure; Major Shareholder Threshold Maintained at 1 Billion Won

Ministry of Economy and Finance, Follow-up Enforcement Decree Amendments After 2020 Tax Law Revision

Financial Investment Income Basic Deduction Requires Managing Over Two-Thirds of Assets in Domestic Listed Stocks
Major Shareholder Criteria for Stock Capital Gains Tax Maintained at 1 Billion KRW Until 2022
Pre-sale Rights Included in Housing Count for Capital Gains Tax Surcharge on Multiple Homeowners
Mandatory Cash Receipt Issuance Extended to Car Wash and Machinery Tool Retail Businesses
Public Officials' Awards Also Taxed as Earned Income

Im Jae-hyun, Director of the Tax Policy Bureau at the Ministry of Economy and Finance (center), is announcing the main contents at a background briefing on the "2020 Tax Law Amendment Follow-up Enforcement Decree Revision" held at the Government Sejong Complex in Sejong City on the 5th. From the left: Jeong Jeong-hoon, Director of Property and Consumption Tax Policy at the Ministry of Economy and Finance; Kim Tae-joo, Director of General Tax Policy at the Ministry of Economy and Finance; Director Im; Go Gwang-hyo, Director of Income and Corporate Tax Policy at the Ministry of Economy and Finance; Joo Tae-hyun, Director of Customs Policy at the Ministry of Economy and Finance.

[Sejong=Asia Economy Reporter Joo Sang-don] To encourage private participation in the Korean New Deal, the New Deal Infrastructure Fund established in March this year must invest at least 50% in New Deal infrastructure to receive tax benefits. Also, pre-sale rights are included in the housing count for multiple homeowners' capital gains tax surcharges, treated the same as occupancy rights. The major shareholder threshold for stock capital gains tax remains at 1 billion KRW until 2022.

On the 6th, the Ministry of Economy and Finance announced that it has prepared 21 follow-up enforcement ordinance amendments, including the Income Tax Act Enforcement Decree, to stipulate delegated matters from the revised tax law passed by the National Assembly last December.

Previously, the government decided to apply a separate 9% tax on dividend income up to 200 million KRW for investments in public New Deal infrastructure funds. The specific conditions for tax support were delegated to the enforcement decree, which this time set the criterion as "investing 50% or more in New Deal infrastructure (judged by averaging the investment ratio over one year)."

Details regarding the newly established integrated investment tax credit were also stipulated. Although land, buildings, and vehicles were originally excluded from the tax credit, the enforcement rules were amended to allow credits for buildings, vehicles, and other assets that qualify as essential business assets by industry and were previously eligible under specific facility investment tax credits.

The detailed requirements for the basic deduction on financial investment income taxation, effective in 2023, were also defined. The basic deduction of up to 50 million KRW applies to the combined income from the transfer of domestic listed stocks on the securities market and income from qualified public domestic equity-type collective investment schemes (funds). The fund requirement was specified as managing at least two-thirds of total assets in domestic listed stocks.

To enhance tax fairness, pre-sale rights newly acquired from January 1 this year are included in the housing count for capital gains tax exemption and multiple homeowners' surcharges.

The Ministry of Economy and Finance stated that it is not currently considering additional strengthening of comprehensive real estate tax or capital gains tax. Lim Jae-hyun, Director of the Tax Policy Division at the Ministry, said in a background briefing yesterday, "The government is always monitoring the real estate market, but at present, it is not reviewing any special measures to strengthen comprehensive real estate tax or capital gains tax." He added, "Regarding carbon tax and carbon neutrality, there are currently no plans to adjust the transportation energy environment tax or increase the diesel tax rate." However, he explained that for inheritance tax, a review of improvement measures will be conducted this year following a request made in the supplementary opinion of the Planning and Finance Committee during the last regular session of the National Assembly.

From January 1 next year, virtual assets will also be taxed. Other income tax at a 20% rate will be applied to amounts exceeding 2.5 million KRW from income generated by transfer or lending. Taxable income is calculated by subtracting necessary expenses such as actual acquisition costs from capital gains, and the first-in-first-out method is applied, assuming assets acquired first are transferred first. The market price is the average daily price announced by virtual asset operators one month before and after the transaction date, as notified by the National Tax Service Commissioner.

Additionally, the scope of businesses required to issue cash receipts will expand next year. Currently, 87 industries, including lawyers, hospitals and clinics, private academies, and furniture retail, are designated for mandatory cash receipt issuance. Eight more industries, including car wash and machinery tool retail businesses, will be added.

Furthermore, considering that real estate rental income has low relevance to labor income like interest and dividend income, it will be excluded when calculating earned income tax credit payments. To avoid double taxation, when passenger cars subject to individual consumption tax are converted into camping cars, the "pre-conversion vehicle price" will be excluded from the tax base. Also, the tax rates on beer and Takju subject to specific consumption tax will be adjusted to 834.4 KRW and 41.9 KRW per liter respectively, reflecting consumer price inflation. Awards and prizes exceeding 2.4 million KRW annually received by public officials from the state or local governments for official duties will be taxed as earned income.

The Ministry estimates that tax revenue will decrease by 165 billion KRW (excluding the tax revenue effect of the 2020 tax law amendment) due to this enforcement decree amendment.

The Ministry plans to submit the enforcement decree amendment to the National Assembly within this month after public notice until the 21st and procedures such as vice ministerial and Cabinet meetings, with promulgation and enforcement scheduled for next month.