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Local Compliance InformationCorporate Tax The transition of heavy taxation of capital gains tax
I.Introduction
In recent years, capital gains tax burden, especially on transferring a house, hasbeen heavier. Moreover taxation systems have become so much complicated that even tax experts should be careful in calculation. Many rounds of revision forstrengthening the taxation system in short period of time led to complex rulesand provisions, making tax payers more complicated about the taxation system.Therefore, in this post, I'd like to offer brief history of capital gains taxin order to help you have better understanding about it.
1. The resurgence of heavy taxation of capital gains tax (Aug. 3, 2017 ~ Mar. 31,2018)
Where a household holding more than 3 houses located in Seoul metropolitan area or 5metropolitan cities which exceed KRW 300mil sells a house in over-heatedspeculative areas by Mar 31, 2018, he or she should pay extra 10 percent ofadditional tax but could be the subject of long-term holding deduction. If theperson sells the house by Dec 31, 2017 he or she could be exempt from theadditional tax, applying basic tax rate.
Inthis period, households with multi-houses were given time to avoid heavytaxation because they could be the beneficiary of long-term holding deductioneven though additional tax was imposed.
2.Full implementation of Heavy taxation of capital gains (Apr.1, 2018 ~ Present)
￭ House owners with more than 3 houses
Wherea household with more than 3 houses sells a house in the target areas ofspeculative investment the household is imposed by 20 percent of additional taxadded to basic tax rates and exempt from long term holding deduction. Thelonger the house owner has the house the heavier taxes will be imposed. Thecalculation of the number of houses for taxation is based on the housing priceswhere a house is located in Seoul metropolitan areas or metropolitan cities exceedsKRW 3 million.
￭ House owners with 2 houses
Wherea household sells a house in the target areas of speculative investment thehousehold is imposed by 10 percent of additional tax added to basic tax ratesand exempt from long term holding deduction. Tax burden is also heavy for thehouseholds with 2 houses because they are also excluded from the long-termholding deduction.
3.Introduction of 2 year residency requirement
Thisrequirement is applied to the house purchased after Aug 3, 2017. Where a houseis retained more than 2 years it is the subject of the exemption of capitalgains tax. This was applied to all house owners. But as of Aug 3, 2017, thosewho hold a house in target areas of speculative investment have to meet the 2year residency requirement.
4. Reductionof retention period for temporary second home
￭Before September 13, 2018:
Wherea temporary second home owner sells an existing house within 3 years frombuying the owner could be acknowledged to a household with one house.
￭After September 14, 2018:
Asecond house owner in the target areas for speculative investment shall sell anexisting house within 2 years from buying
5.Heavy taxation on newly buying rental houses in the target areas of speculativeinvestment
Housesbought after September 14, 2018 are the subject of the heavy taxation. Where amulti-house owners acquire a long-term rental house in the target areas ofspeculative investment (a house exceeds KRW 600 mil in metropolitan areas and300 mil in non-metropolitan areas respectively) sells the rental house theowner could be excluded from heavy taxation on capital gains tax provide thatit meets the criteria. However, this provision was revised to impose heavytaxes on newly bought houses in the target areas of speculative investment.
￭second house holders: 10 % point / ￭ third house holders: 20% point
6.Stricter criteria for long-term retain deduction of high-grade house owners
Thisprovision is applied to the houses bought after Jan 1, 2020. Currently,high-grade house (exceeds real-transaction price of KRW 9mil) owners have beeneligible for long-term retaining deduction up to 80% without the requirement ofresidency. However, as of Jan 01, 2020 those who meet the residency requirementof 2 years can enjoy the benefit of long term retaining deduction but those whodon't meet the requirement are the subject of the basic residency requirement.(15 yrs, Max 30%)
7.Stricter criteria for retaining requirements of a house for a family
Thisprovision is applied to a house bought after Jan 1, 2021
Currentlywhere a single householder with two years of retaining period is eligible forthe exemption from capital gains tax. However, as of Jan 1, 2020, the retainingperiod of two years should be calculated excepting the period of owning multi-houses.
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