Announcement of the "2021 Tax Law Amendment"
"Easing Household and Care Burdens"... Exemption of VAT on Household Service Fees
[Asia Economy Reporter Jang Sehee] The government is supporting women, a vulnerable group during the COVID-19 pandemic, and providing tax benefits. It is relaxing the requirements for tax credits on the employment of career-interrupted women (Gyeongdan-nyeo) to encourage employment promotion. Additionally, value-added tax (VAT) will be exempted on services provided by specialized household service agencies.
These measures were included in the '2021 Tax Law Amendment' announced by the government on the 26th.
Supporting Reemployment of Career-Interrupted Women... VAT Exemption on Household Service Fees
The tax credit requirement for small and medium-sized enterprises (SMEs) and mid-sized companies employing career-interrupted women will be relaxed from recognizing a career interruption period of 3 years or more to 2 years or more, with a 30% (15% for mid-sized companies) tax credit on labor costs for 2 years.
The SME social insurance premium tax credit, which provides a 50% credit (100% for youth and career-interrupted women, 75% for new growth service industries) on increased social insurance premiums for regular employees for 2 years, will have its application period extended by 3 years until December 31, 2024. If employment decreases during the credit period, the credited tax amount must be repaid.
Furthermore, to reduce the burden of household chores and childcare for dual-income families, VAT will be exempted on services provided by specialized household service agencies. This includes cleaning, laundry, kitchen work, and protection and nurturing of household members. The purpose is to alleviate household expenses amid low birth rates and aging population. A government official stated, "The VAT exemption benefit will be available simultaneously with the enforcement of the Household Workers Act in June next year."
Currently, taxation is applied on manpower supply for cleaning services, security, and similar dispatch services.
40% Income Deduction Benefit for Long-Term Funds... Tax Exemption on Interest Income from Youth Hope Savings
Support for youth asset formation and housing will also be strengthened. A new income deduction for youth-type long-term funds will be introduced. Youth with a total salary of 50 million KRW or less can receive a 40% income deduction on fund contributions during year-end tax settlement. The annual contribution limit is 6 million KRW, and the investment period is 3 to 5 years. However, if during the subscription period total salary exceeds 80 million KRW or comprehensive income exceeds 60 million KRW, the relevant tax period will be excluded from the income deduction.
A tax exemption on interest income from Youth Hope Savings will also be introduced. It has a 2-year maturity with a maximum contribution of 6 million KRW per year, offering a 2% savings incentive in the first year and 4% in the second year. Saving 12 million KRW will yield 360,000 KRW in incentives, separate from bank interest. The income tax reduction on the Youth Employment Tomorrow Deduction payout will be expanded from 50% to 90%.
Regarding this, Professor Hong Woo-hyung of Hansung University’s Department of Economics said, "The VAT exemption on household service fees is somewhat minimal in reducing household burdens, but the youth long-term fund income deduction and Youth Hope Savings tax exemption can serve as seed money, providing some opportunities."
© The Asia Business Daily(www.asiae.co.kr). All rights reserved.
