[2024 Local Tax Law Amendment] Tax Reductions on Housing and Vehicle Acquisition to Prevent Low Birthrate and Local Extinction (Comprehensive)

'2024 Local Tax Revenue Related Law Amendments' Released to 'Boost Economic Vitality'
New Acquisition Tax Reduction for Housing in Population Decline Areas...Local Tax Reduction for Rental Housing
Car Acquisition Tax Reduction Benefits Extended from Families with 3+ Children to Those with 2 Children
First-Time Eligibility Maintained for Buyers of Small, Low-Priced Non-Apartment Rental Housing

The government has decided to improve the local tax system to overcome the ultra-low birthrate and regional extinction situation. Unlike the previous support measures that relied solely on central government-led handout policies, the aim is to increase benefits that citizens and businesses can immediately feel through cooperation between the central and local governments. Representative examples include halving the acquisition tax when purchasing a house in population-declining areas and expanding the automobile acquisition tax reduction benefit, which was previously applied only to families with three or more children, to those raising two children.

At the Local Tax Development Committee held on the 13th to finalize the '2024 Local Tax Revenue Related Law Amendment,' Minister of the Interior and Safety Lee Sang-min pointed out the issues of ultra-low birthrate and regional extinction, stating, "South Korea entered an ultra-low birthrate society with a total fertility rate below 1.3 in 2001, and last year's total fertility rate was a record low of 0.72." He evaluated the amendment as "an effective local tax policy contributing to local autonomy and balanced development in the Republic of Korea."

In fact, this amendment focuses on 'enhancing economic vitality' and 'supporting livelihood stability.' Strengthening region-specific local tax support that backs balanced development in local areas such as population-declining regions, non-metropolitan areas, and rural fishing villages is a representative measure. Additionally, measures to alleviate the burden of childbirth and child-rearing in daily life have been added.

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Enhancing Regional Vitality by Attracting Population... Inducing Residents' Livelihood Stability through Tax Benefits

First, to increase the resident population and revitalize the local economy in population-declining areas, a new acquisition tax reduction for housing in these areas has been introduced. The conditions include ▲being a non-homeowner or owning only one house, acquisition price under 300 million KRW ▲population-declining areas within the metropolitan area (excluding border areas) and metropolitan cities (excluding county areas) ▲a mandatory holding period of over three years, but the intention is to actively use this as a regional population attraction measure. The target excludes six areas among the 89 population-declining areas nationwide (Nam-gu and Seo-gu in Daegu, Dong-gu, Seo-gu, and Yeongdo-gu in Busan, and Gapyeong-gun in Gyeonggi Province). Although metropolitan areas and metropolitan cities are excluded from population-declining areas, border areas within the metropolitan area and county areas within metropolitan cities are included.

A new measure has also been introduced to reduce acquisition tax when utilizing unsold apartments for rent after local completion. The core is to reduce acquisition tax on newly built apartments used as rental housing if they remain unsold outside the metropolitan area. Conditions include ▲apartments completed between January 10, 2024, and December 31, 2025 ▲exclusive area of 85㎡ or less, acquisition price under 300 million KRW ▲rental contracts signed by December 31, 2025, with a mandatory rental period of two years or more.

Measures to expand local investment and enhance regional vitality have also been proposed. To promote balanced regional development, the local tax reduction for corporate and factory relocations to local areas will be extended. Although a 100% reduction benefit is currently provided, it will be maintained for five years and then a 50% reduction benefit will be granted for an additional three years.

Medical facilities are also included in the benefit targets. Medical institutions providing quality medical services to local residents and fulfilling social responsibilities such as infectious disease response are eligible. The reduction benefits of 15-75%, currently applied depending on the facility, for local medical centers, national university hospitals, and public health medical institutions such as the National Cancer Center will be extended. Additionally, inducements for population inflow into rural fishing villages are included. Tax reductions for returnees to farming, fishermen, and rural housing improvement projects will be extended.

Increasing Corporate Benefits to Maintain Regional Competitiveness... Benefits for Financial Structure Improvement and Distressed Assets

Corporate benefits will also increase. To normalize projects facing difficulties due to rising interest rates and raw material prices in real estate development projects, new reduction benefits for acquiring such projects have been created. The targets are real estate of distressed project finance investment companies acquired by project finance investment companies and land acquired by the Korea Land and Housing Corporation for corporate debt repayment. Future targets will receive 50% and 25% reduction benefits, respectively.

To improve corporate financial structures, support for reductions on properties acquired from distressed financial institutions under timely corrective actions by the government will be extended. Properties acquired by financial institutions, Korea Asset Management Corporation, Deposit Insurance Corporation, resolution financial companies, and cooperatives such as Nonghyup, Suhyup, Shinhan Credit Union, Forestry Cooperatives, and Saemaul Geumgo currently receive a 100% acquisition tax reduction benefit.

Measures to reduce the burden on small business owners by supporting resident tax are also notable. The sunset clause for exemption from the resident tax business place portion penalty will be extended for two years to alleviate the burden on small business owners unaware of the changed system, and the exemption criteria for resident tax employee portion will be raised to encourage employment expansion.

Additionally, acquisition tax reductions will be supported when acquiring shares to become a major shareholder to improve corporate management and dispose of distressed assets. Furthermore, to protect domestic investors and develop the capital market, local income tax on financial investment income will be abolished. Until now, income realized from financial investments such as stocks and bonds has been taxed.

Automobile Acquisition Tax: 50% Reduction for Two Children, 100% for Three or More

The automobile acquisition tax reduction benefit for families raising multiple children has been expanded so that families with two children will receive a 50% reduction. Previously, only families with three or more children received a 100% acquisition tax reduction benefit. For passenger cars with six or fewer seats, the limit is 700,000 KRW for two children and 1,400,000 KRW for three or more children. An official from the Ministry of the Interior and Safety explained, "Considering the trend of relaxing the criteria for multiple children at the government-wide level, the reduction target has been expanded to families raising two children."

To promote a culture of shared childcare between companies and society, acquisition tax and property tax for workplace daycare centers will be 100% exempted. Previously, only employers obligated to install workplace daycare centers received a 50% acquisition tax and 100% property tax exemption, but the expanded exemption applies to all workplace daycare centers.

Acquisition tax benefits related to housing for the stability of low-income households have also increased. First, the limit for the 100% acquisition tax exemption granted to first-time homebuyers has been raised from 2 million KRW to 3 million KRW. A special provision has been introduced to maintain the first-time homebuyer exemption qualification when purchasing an apartment or other housing later if the buyer has lived in a small, low-priced house for more than one year under a lease or monthly rent before acquiring that house.

Local tax reductions for people with disabilities, national veterans, and Hansen's disease patients will be extended. Currently, people with disabilities and national veterans receive a 100% reduction on automobile acquisition tax and automobile tax, and veterans eligible for compensation receive a 50% reduction. Hansen's disease patients receive a 100% reduction on acquisition tax and property tax for real estate in their residential areas.

To strengthen safety such as earthquake damage prevention, local tax reductions for seismic reinforcement buildings will also be expanded. A 5% acquisition tax reduction for newly constructed buildings certified as 'earthquake-safe facilities' will be extended. Even buildings not subject to mandatory earthquake safety confirmation but that have received 'seismic performance confirmation' will have seismic reinforcement costs deducted from the acquisition tax base and receive a 50% property tax reduction for five years.

An official from the Ministry of the Interior and Safety said, "Despite the continuous strengthening of mandatory seismic reinforcement standards, the seismic reinforcement rate of private buildings was only 16.7% as of the end of last year, which is very low compared to 78.1% for public buildings," adding, "Tax support is necessary to raise awareness of the importance of seismic reinforcement and to create an environment for voluntary participation by non-mandatory targets."