Deputy Minister of Economy and Finance Lee Hyung-il announced on August 3 that the government will support a major economic leap for South Korea through tax reforms aimed at fostering strategic industries such as artificial intelligence (AI) and semiconductors, while also focusing on the livelihoods of citizens and local support.
The 59th Tax Development Advisory Committee convened in Seoul, where Lee noted that while the South Korean economy is experiencing growth momentum due to the AI and semiconductor boom, uncertainties remain due to factors like the Middle East conflict.
The Ministry of Economy and Finance has set the goal of the tax reform plan as 'supporting an irreplaceable South Korea's economic leap,' establishing three core directions: supporting potential growth rates, aiding livelihoods and local economies, and establishing fair taxation.
Lee stated, "We will introduce a 'Domestic Production Tax Credit' to support items of strategic importance in terms of global economic security and green transition, aiming to boost potential growth rates." The sectors targeted include solar power, wind power, secondary batteries, semiconductors, key materials, and AI robot components.
Additionally, the government plans to include future energy sectors such as small modular reactors (SMRs) and micro modular reactors (MMRs) as national strategic technologies.
He also mentioned the introduction of a tiered structure that maintains certain benefits for small businesses even after graduation, and the establishment of a 'Productive Finance Individual Savings Account (ISA)' focused on long-term investments in the domestic stock market to channel funds into productive sectors of the economy.
The tax reform plan also includes support for livelihoods and local economies. The government plans to significantly expand the Earned Income Tax Credit (EITC) and raise the limit for monthly rent tax deductions. A 'Youth Productive Finance ISA' will be introduced, offering a 10% income deduction on contributions for young people.
Furthermore, the tax system will be restructured to provide more benefits to local areas. Lee explained, "We will apply regional coefficients to the Domestic Production Tax Credit, R&D tax credits, and integrated investment tax credits, ensuring that tax benefits for local areas are up to 1.5 times greater than those in the metropolitan area."
Lee also addressed the highly discussed real estate tax policies in the reform plan. The comprehensive real estate tax rate system will be unified based on housing value, and the threshold for taxing single-family homes will be raised from the current assessed value of 1.2 billion won to 1.4 billion won.
For primary residences, the tax burden will be reduced for properties valued between 2 billion and 3 billion won, while those valued between 3 billion and 4 billion won will see minimal tax changes. Lee emphasized, "We will normalize taxation for homes valued between 4 billion and 5 billion won."
The reform plan also includes a focus on primary residences. For unoccupied homes and multiple properties, the basic deduction amount will be reduced, and the long-term holding special deduction for capital gains tax will be excluded. For primary residences, a maximum deduction of 80% will apply for up to 10 years.
Lee stated, "For homes sold after more than 10 years of residence valued at 3 billion won or less, we will increase the basic deduction from 2.5 million won to 25 million won to reduce capital gains tax."
Additionally, measures such as a maximum 50 million won capital gains tax exemption for single-home owners relocating to local areas, expanded deferral of comprehensive real estate tax payments, and temporary easing of capital gains tax for multiple property owners were also announced.
The government plans to normalize the comprehensive real estate tax from next year through 2028, with a grace period for capital gains tax in 2024, followed by a phased implementation starting in 2028.
Finally, Lee announced plans to revise the business succession tax exemption. He stated, "We will redesign the eligible industries, requirements, and exemption limits to align with the original intent of the system, ensuring that 'the succession of specialized skills and know-how' is eligible for tax exemptions. We will also introduce special provisions to provide tax benefits to both sellers and buyers when a business is transferred to a third party rather than a family member."
* This article has been translated by AI.
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