The National Assembly Committee on Strategy and Finance Approves Tax Reform Bill...Top Income Tax Rate 45% and Reduction in Comprehensive Real Estate Holding Tax

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[Asia Economy Reporter Kim Hyemin] The top income tax rate will be raised to 45%. Married couples who jointly own one house will be allowed to report as a single household owning one house, enabling them to receive benefits from elderly and long-term ownership deductions when paying comprehensive real estate tax.

According to the National Assembly on the 1st, the Planning and Finance Committee approved a total of 16 tax law amendment bills including this content the day before. These amendments will be finalized once they pass through the Legislation and Judiciary Committee and are approved in the plenary session.

Among them, the amendment to the Income Tax Act established a new bracket for comprehensive income tax base exceeding 1 billion KRW and raised the income tax rate for this bracket from the existing 42% to 45%. Approximately 16,000 people are subject to the highest income tax rate, corresponding to the top 0.05% of income earners. As part of wealth taxation, the ruling and opposition parties had heated debates in the Planning and Finance Committee’s tax subcommittee but ultimately passed the government’s proposal.

Instead, the ruling and opposition parties also processed an amendment to the Comprehensive Real Estate Tax Act to reduce the burden of the comprehensive real estate tax. The main point is to allow married couples who jointly own one house to report as a single household owning one house. In this case, the couple can either receive the current basic deduction of 600 million KRW each, totaling 1.2 billion KRW, or choose to apply a 900 million KRW basic deduction as a single household owning one house and receive either the elderly or long-term ownership deduction. Once the amendment to the Comprehensive Real Estate Tax Act is implemented, it is expected that couples who have jointly owned one house for a long time will see their comprehensive real estate tax burden reduced by up to 80%.

Additionally, the Planning and Finance Committee passed a tax law amendment bill to introduce a financial investment income tax starting in 2023. Accordingly, from 2023, capital gains from all listed stocks exceeding 50 million KRW annually will be subject to taxation. However, losses can be carried forward and deducted for up to five years. Currently, this applies only to major shareholders holding assets worth 1 billion KRW (or a 1-2% stake) or more. Instead, the securities transaction tax will be reduced by 0.02 percentage points next year and further reduced by 0.08 percentage points in 2023.

The taxation application date for virtual assets has been postponed by three months from October 1 next year to allow for preparation of the taxation infrastructure. Domestic residents will be subject to separate taxation at a 20% rate on income after applying a basic deduction of 2.5 million KRW. Foreigners will be subject to withholding tax at the lower of 10% of the transfer price or 20% of the capital gains.

In addition, a separate taxation at a 9% rate with a limit of 200 million KRW has been newly introduced for dividend income from specific social infrastructure collective investment schemes such as New Deal infrastructure funds, to be implemented until the end of 2022. The so-called 'Good Landlord Tax Credit,' which provides a tax credit of 50% of the rent reduction amount against the landlord’s income or corporate tax, will have its application period extended until June 30 next year. The tax credit rate for labor costs for employees returning from parental leave will be 30% for small and medium enterprises and 15% for mid-sized companies.

The amendment to the Restriction of Special Taxation Act to tax excess retained earnings of individual quasi-corporations with high major shareholder stakes was not processed. Although the government announced a tax law amendment to impose income tax (retained earnings taxation) by considering their excess retained earnings as dividends, it was ultimately shelved as opposition grew from small and medium enterprises with a high proportion of family businesses and failed to pass the National Assembly. The plan to establish a limit on tax reduction for local relocation companies was also deferred in the Planning and Finance Committee.

The current plan to impose an individual consumption tax of 370 KRW per 1ml of nicotine solution in liquid-type electronic cigarettes was maintained. Although the government proposed raising it to 740 KRW per 1ml, the current tax rate was kept considering the tax burden.

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