If Rent is Reduced in the First Half of the Year, 70% Tax Credit... Only 50% for Those with Comprehensive Income Over 100 Million Won

Ministry of Economy and Finance Announces Tax Incentive Restriction Act Amendment Bill on the 5th

[Sejong= Asia Economy Reporter Kim Hyunjung] To alleviate the rent burden of small business owners struggling due to the novel coronavirus disease (COVID-19) crisis, the government will provide a tax credit benefit of 70% on the reduced rent amount to 'Good Landlords' who voluntarily reduce rent. This applies only for the first half of this year (January to June), and for landlords whose comprehensive income exceeds 100 million KRW based on the rent before reduction, the credit rate will be limited to 50%.

On the 5th, the Ministry of Economy and Finance announced an amendment to the Restriction of Special Taxation Act containing these details. The main point of this amendment is that when commercial building owners reduce rent for small business tenants, a portion of the reduced amount will be credited against income and corporate taxes.

Previously, the government announced that it would apply a 50% tax credit on rent reductions to further promote the private sector's 'Good Landlord Movement' last year. This time, the rate will be increased to 70% for the first half of this year to encourage more landlord participation.

To prevent a regressive issue where the tax savings landlords gain from rent reductions exceed the amount of the rent reduction itself as the tax credit rate rises, landlords with a comprehensive income (total revenue minus necessary expenses) exceeding 100 million KRW based on the rent before reduction will still be subject to a 50% credit rate. The Ministry of Economy and Finance views that the regressive phenomenon occurs once the comprehensive income exceeds 100 million KRW and the income tax rate surpasses 35%.

For example, a building owner with a comprehensive income of 90 million KRW, subject to a 24% income tax rate, would save 240,000 KRW in income tax by reducing rent by 1 million KRW and receive a 700,000 KRW tax credit (1 million KRW x 70%). On the other hand, a high-income building owner with a comprehensive income exceeding 100 million KRW, subject to an income tax rate of 35-45%, would save 350,000 to 450,000 KRW in income tax plus receive a 700,000 KRW tax credit when reducing rent by 1 million KRW, resulting in a post-tax income (1,050,000 to 1,150,000 KRW) greater than the rent reduction amount, which is contradictory.

Meanwhile, the government plans to submit this amendment to the National Assembly at the end of this month after legislative notice and Cabinet meeting.

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