If Rent is Reduced in the First Half of This Year, 70% Tax Credit... Additional 1 Million Won Deduction for Using Cards More (Comprehensive)

Announcement of Amendment to the Restriction of Special Taxation Act... Submission to the National Assembly at the End of This Month

[Asia Economy Reporter Kwangho Lee] This year, landlords who voluntarily reduce rent for small business tenants struggling due to the COVID-19 pandemic in the first half of the year will receive a tax credit of 70% of the rent reduction amount. Additionally, if credit card usage increases by more than 5% compared to last year, taxpayers can receive up to an additional 1 million KRW in income deduction.

The Ministry of Economy and Finance announced a revision to the Restriction of Special Taxation Act containing these measures on the 5th.

◆ 70% Tax Credit on Rent Reduction by 'Good Landlords' in the First Half of This Year = First, the government will provide a tax credit of 70% of the rent reduction amount to landlords who voluntarily reduce rent for small business tenants. This applies only to the first half of this year.

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 is 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 rent reduction amount, landlords with a comprehensive income amount (total revenue minus necessary expenses) exceeding 100 million KRW, calculated based on rent before reduction, will only receive a 50% tax credit. The Ministry of Economy and Finance considers that regressive effects occur when the comprehensive income exceeds 100 million KRW and the income tax rate surpasses 35%.

For example, a landlord with a comprehensive income of 90 million KRW, subject to a 24% income tax rate, will save 240,000 KRW in income tax when reducing rent by 1 million KRW and receive a 700,000 KRW tax credit (1 million KRW x 70%). Conversely, a high-income landlord with comprehensive income exceeding 100 million KRW and 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 for a 1 million KRW rent reduction, resulting in a post-tax income (1.05 to 1.15 million KRW) exceeding the rent reduction amount, which is contradictory.

◆ Up to 1 Million KRW Additional Income Deduction for Increased Credit Card Usage This Year = The government also announced that if credit card usage increases by more than 5% compared to last year, an additional income deduction of up to 1 million KRW will be provided.

In December last year, the government announced this separate income deduction for increased credit card usage as part of efforts to stimulate domestic consumption in this year's economic policy direction.

The newly applied credit card income deduction provides an additional 10% deduction rate on the portion of credit card usage exceeding last year's amount by more than 5%.

The current credit card income deduction applies a deduction rate of 15-40% on credit card usage exceeding 25% of total salary. Credit cards receive a 15% deduction rate, cash receipts and debit cards 30%, and traditional markets and public transportation usage 40%. Applying an additional 10% deduction rate on the increased usage can raise the deduction rate from the existing 15-40% to 25-50%.

Currently, the credit card income deduction limit is up to 3 million KRW for those earning 70 million KRW or less, up to 2.5 million KRW for those earning between 70 million and 120 million KRW, and up to 2 million KRW for those earning over 120 million KRW. Adding the 1 million KRW additional limit increases the deduction limit from the existing 2-3 million KRW to 3-4 million KRW.

The government plans to submit this tax law amendment to the National Assembly by the end of this month. If passed, it will apply from the year-end tax settlement for this year's income.

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