[Practical Finance] Special Cases for Comprehensive Real Estate Tax for Public Interest Corporations... If You Missed the Application, Do So by Early December

As the real estate market heated up in 2020 and speculation through corporate establishment became frequent, the government strengthened regulations on corporations through the June 17 real estate measures. The basic deduction of 600 million KRW for housing owned by corporations was abolished, and the comprehensive real estate tax rate was set at 3% for those with two or fewer houses, and 6% for those with two or more houses in regulated areas or three or more houses regardless of whether they are in regulated areas. The basic deduction and tax burden cap do not apply. As a result, corporations holding houses for public interest purposes also faced excessive tax burdens.

A tax consultation notice for property tax, comprehensive real estate tax, and others is posted at a real estate agency office in Songpa-gu, Seoul. / Photo by Yonhap News

However, from 2021, public housing operators as defined in the Public Housing Special Act, public interest corporations as defined in the Inheritance and Gift Tax Act, reconstruction and redevelopment project implementers and housing cooperatives as defined in the Housing Act and Urban Renewal Act, and construction rental housing operators under the Special Act on Private Rental Housing became eligible for special exemptions.

Accordingly, public interest corporations, religious organizations, Jongjung (ancestral clan associations), social enterprises supporting housing-vulnerable groups, cooperatives, and public housing operators for whom housing acquisition is essential for business purposes can apply for the general corporate tax rate exemption to reduce their comprehensive real estate tax burden. Eligible corporations must apply to the competent tax office via Hometax, Sontax, or in writing between September 16 and September 30 to receive the comprehensive real estate tax exclusion and tax exemption. If they miss this period and fail to apply for the exemption, they can directly report and pay at the competent tax office from December 1 to 15 of this year.

To receive the exemption benefits, an application must be submitted annually even if the exemption was applied for last year. There have been reports that some religious corporations that applied in 2021 but did not apply in 2022 suddenly received high comprehensive real estate tax notices. Especially from this year, when applying for the general corporate tax rate exemption, the basic tax rate (0.5?2.7%) applies regardless of the number of houses, instead of the heavy tax rate (0.5?5%). If a public interest corporation (including religious and educational organizations) as defined in the Inheritance and Gift Tax Act holds houses for purposes other than public interest, the previous system applies, where the basic tax rate applies for two or fewer houses and the heavy tax rate applies for three or more houses.

The properties subject to exclusion reporting include rental housing, employee housing, land acquired by housing developers for housing construction, etc. Temporary two-households, inherited houses, low-priced houses in local areas, and jointly owned houses by spouses are calculated as one household with one house when applying for the exemption. Exclusion reporting means notifying the competent tax office to exclude the property from the taxable base. It is an application requesting that the property not be included in the comprehensive real estate tax because it meets the requirements.

For rental housing, as of the tax base date (June 1), the house must be actually rented and the local government rental business registration and tax office housing rental business registration must have been completed by the application deadline of October 4. However, since the beginning of this year, all areas except Gangnam, Seocho, Songpa, and Yongsan districts in Seoul were removed from the regulated areas, allowing comprehensive real estate tax exclusion. Nevertheless, houses newly acquired in regulated areas after September 14, 2018, cannot be excluded.

Employee housing includes employee housing and dormitories meeting legal requirements, unsold houses of housing developers, houses for demolition purposes, and registered cultural heritage houses. Land for housing construction refers to land acquired by housing developers for housing construction that will receive approval for a business plan under the Housing Act within five years from the acquisition date.

If exclusion reporting is submitted for these houses and land, they are excluded from the comprehensive real estate tax base, and taxpayers who have previously applied for exclusion do not need to reapply annually as it is applied every year. However, if the requirements are not met and exclusion cannot continue, a removal report must be submitted.