Ministry of Economy and Finance, Amendment to the '2022 Tax Reform Follow-up Enforcement Rules'
Annual Interest Rate for Deposit Imputed Rent Calculation Raised from 1.2% to 2.9%
[Asia Economy Sejong=Reporter Joo Sang-don] From this year, the tax burden on jeonse deposits will increase. This is because the interest rate applied when calculating the deemed rental income on rental deposits has more than doubled from 1.2% per annum to 2.9% per annum due to the rise in market interest rates.
On the 22nd, the Ministry of Economy and Finance announced the "2022 Tax Reform Follow-up Enforcement Rule Amendment" containing these details.
Under tax law, monthly rent and deposits are taxable as income for landlords. For monthly rent, taxes must be paid if owning two or more properties, and for deposits, if owning three or more properties. However, until this year, 'small-sized houses' with a residential exclusive area of 40㎡ or less and a standard market price of 200 million KRW or less are excluded from the housing count. Even if a person owns three houses, if one is a small-sized house, they are considered to own two houses and are excluded from taxation.
If a multi-homeowner owning three or more properties receives a total deposit of 300 million KRW or more from tenants, the deposit is converted into monthly rent, i.e., deemed rental income is calculated and taxed based on this. The deemed rental income is calculated by multiplying interest by 60% of the amount exceeding 300 million KRW of the total deposit, and this interest rate is being raised from 1.2% per annum to 2.9% per annum.
For example, if a three-homeowner receives a jeonse deposit of 300 million KRW per property without monthly rent, the total deposit is 900 million KRW. Assuming the landlord has no other income, last year the deemed rental income on the 900 million KRW deposit was 4.32 million KRW. This is the result of multiplying the interest rate of 1.2% by 60% of 600 million KRW, which is the amount exceeding 300 million KRW from the total deposit of 900 million KRW. However, if the interest rate rises to 2.9%, the deemed rental income increases to 10.44 million KRW. This means taxable income increases by 6.12 million KRW. The Ministry of Economy and Finance estimates that the annual tax payable will increase by 209,304 KRW accordingly.
The interest rate also applies to the national tax and customs refund surcharge, which is the interest equivalent added when refunding national tax and customs due to overpayment, etc. This means the interest on taxes the government must refund will also increase.
A Ministry of Economy and Finance official said, "The interest rate has been adjusted annually considering the average interest rate of time deposits, and we intend to raise it reflecting recent trends in market interest rate hikes. From the government's perspective, since the interest rate applies to both refunds and collections, raising it will be neutral in terms of tax revenue."
Along with this, the Ministry of Economy and Finance decided to expand the scope of national strategic technology commercialization facilities through the amendment of enforcement rules. If recognized as a national strategic technology commercialization facility, a higher investment tax credit rate (8%, 8%, 16% for large, medium, and small enterprises respectively) applies compared to general facilities (1%, 5%, 10%). Currently, 31 facilities in three fields?semiconductors, secondary batteries, and vaccines?are recognized. Six additional facilities will be added, including ▲system semiconductor test equipment manufacturing facilities ▲active-matrix organic light-emitting diode (AMOLED) ▲micro LED ▲QD (Quantum Dot) nanomaterial displays ▲panel manufacturing deposition and coating materials ▲TFT (Thin Film Transistor) formation equipment, expanding the total to 37 facilities.
The scope of new growth commercialization facilities will also be expanded. From the current 181 facilities in 13 fields including future vehicles and carbon neutrality, additional facilities focusing on carbon neutrality (9 new, 4 expanded) will be added, increasing the total to 190 facilities in 13 fields. New growth commercialization facilities are eligible for investment tax credits of 3% for large enterprises, 6% for medium enterprises, and 12% for small enterprises.
Additionally, sports instructors and trainers will be required to submit income data for income earned from January 1 next year. Currently, only eight occupations including substitute drivers, quick service drivers, caddies, and caregivers are required to submit income data monthly to tax authorities. Sports instructors and trainers will be added to this list.
Furthermore, considering the wage increase rate of small and medium enterprises over the past three years, the Ministry of Economy and Finance decided to raise the average wage increase rate of small and medium enterprises, which is the standard for applying the earned income increase tax system, from the current 3.0% to 3.2%. The consignment fee paid to Korea Asset Management Corporation, which handles auction work for seized properties, will also be increased: the sales commission will rise from 3.0% to 3.6% of the sales amount, and the cancellation fee for sales decisions will increase from 1.2% to 2.4% of the purchase price.
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