Interest Rate for Jeonse Deemed Rent Standard Reduced from 2.1% to 1.8%

Ministry of Economy and Finance Announces 2019 Tax Law Follow-up Enforcement Rule Amendments

[Asia Economy Reporter Kim Hyunjung] The interest rate used as the conversion standard for deemed rental income when taxing jeonse deposits will be lowered to reflect market interest rates. Loans for housing purchase and jeonse funds provided to employees of small and medium-sized enterprises (SMEs), which were previously considered unrelated to business and thus subject to tax disadvantages, will now be recognized as related and excluded from 'non-business-related temporary payments.' Additionally, the income cap multiplier applied to those subject to the standard expense ratio has been raised to encourage business operators to file bookkeeping reports.

The Ministry of Economy and Finance announced on the 11th that it plans to revise the 2019 tax law enforcement regulations accordingly. The amendment includes lowering the interest rate used to calculate the interest equivalent amount added when refunding national and customs taxes due to overpayment, as well as the interest rate for deemed rental income on real estate lease deposits, from the current annual 2.1% to 1.8%, a 0.3 percentage point reduction. Real estate lease deposits are taxed on income such as income tax, corporate tax, and value-added tax by applying the interest rate of a one-year fixed deposit. The Ministry adjusts this interest rate annually to reflect market interest rate trends. As of the fourth quarter of last year, the average interest rate for one-year fixed deposits at commercial banks was 1.67%. The 1.8% interest rate will apply to the period after the enforcement date of the regulations for national and customs tax refund interest, and for deemed rental income, it will apply from the taxable year starting January 1 of this year.

Along with this, the amendment includes expanding the scope of bad debt deductible for tax purposes and adding loans for housing purchase by SME employees to the exclusion list of non-business-related temporary payments in the Corporate Tax Act enforcement regulations. Previously, only debts confirmed as uncollectible by settlement or conciliation decisions under the Civil Procedure Act or Civil Mediation Act were deductible. From the date of enforcement of the regulations, debts confirmed as uncollectible by conciliation under the Civil Mediation Act will also be allowed. Loans for housing purchase and jeonse funds provided to SME employees, which had been subject to tax disadvantages such as imputed interest taxation, will be excluded from 'non-business-related temporary payments.' This will be implemented from this year to support SMEs providing housing stability loans to their employees.

To encourage income reporting through bookkeeping, the income cap multiplier applied to those subject to the standard expense ratio will be increased by 0.2 points. Under the current Income Tax Act, if business income is not recorded in the books or if the records are insufficiently supported, income is estimated and taxed during the filing process. In this estimation process, the multiplier used to calculate income for those subject to the standard expense ratio will be raised from 2.6 to 2.8 for simplified bookkeeping subjects and from 3.2 to 3.4 for double-entry bookkeeping obligors. This multiplier will apply until December 31, 2021. The government expects this increase to result in approximately 5 billion KRW in additional tax revenue.

Additionally, through amendments to the Customs Act enforcement regulations, customs duties will be exempted from raw gemstones or roughly processed stones (such as diamonds, rubies, sapphires) that were previously exempt from individual consumption tax, starting from import declarations on April 1. This aims to prevent smuggling for tax evasion in advance. At duty-free shops in arrival halls, cigarette sales will be limited to 200 cigarettes per person, and from July 1, the delivery limit for goods at arrival delivery points will be set at 600 USD. Separate limits apply for one bottle of alcohol (1 liter, 400 USD), 200 cigarettes, and 60 ml of perfume.

This content was produced with the assistance of AI translation services.