The government has begun revising its plan to reduce the comprehensive real estate tax burden for non-resident homeowners, following pushback from the ruling party regarding tax burdens based on residency status. This marks a significant change just over 20 days after the initial tax reform proposal was announced.
According to relevant authorities on the 26th, the Ministry of Economy and Finance is considering increasing the basic deduction for non-resident homeowners above the 900 million won outlined in the tax reform plan. Options include maintaining the current 1.2 billion won or aligning it with the 1.4 billion won deduction for resident homeowners.
The tax reform plan announced on the 3rd of this month proposed raising the basic deduction for resident homeowners from 1.2 billion won to 1.4 billion won while lowering it to 900 million won for non-resident homeowners. The intention was to focus tax benefits on those using their homes as primary residences while reducing benefits for properties held for investment purposes.
The fair market value ratio is set to increase from the current 60% to 70% for both resident and non-resident homeowners by 2028, and the cap on the comprehensive real estate tax burden will rise from 150% to 200% of the previous year's tax amount. This structure would significantly increase the tax burden for non-resident homeowners due to the combined effects of reduced basic deductions and increased fair market value ratios.
According to government estimates, a non-resident homeowner aged 60 who has owned a property valued at 2 billion won for 10 years would see their comprehensive real estate tax rise from 27,600 won to 1.14 million won in 2027 and 1.52 million won in 2028. The government has determined that the disparity in tax burdens based solely on residency status needs to be addressed.
In response, the Democratic Party requested during a high-level government meeting on the 23rd that the government not differentiate between resident and non-resident homeowners for the comprehensive real estate tax. Democratic Party leader Kim Min-seok stated, “Adjusting the basic deduction for non-resident homeowners from 1.2 billion won to 900 million won and increasing the tax burden cap to 200% requires thorough deliberation.”
Revisions to the increase in the fair market value ratio and the expansion of the tax burden cap are also under review. The ruling party is advocating for restoring the basic deduction for non-resident homeowners to 1.2 billion won and maintaining the current 150% cap on tax burdens. However, the government is leaning towards a plan that preserves a difference in deductions, offering 1.4 billion won for residents and 1.2 billion won for non-residents to provide more benefits to actual residents.
The long-term capital gains tax special deduction is expected to shift towards a resident-focused approach while broadly recognizing unavoidable non-resident circumstances. The government plan proposes eliminating holding period deductions starting in 2029 and allowing deductions of 8% per year, up to a maximum of 80%, based on residency duration.
Currently, periods of non-residency due to schooling, employment, medical treatment, overseas stays, or caring for parents can be recognized as residency for up to three years if certain conditions are met. The government and ruling party are considering adding non-residency reasons that taxpayers cannot easily avoid, such as childcare, caring for grandchildren, family caregiving, and reconstruction or remodeling.
Deputy Prime Minister and Minister of Economy and Finance Ku Yun-cheol stated on the 24th during a National Assembly budget committee meeting, “We aim to recognize residency when there are reasonable grounds for non-residency to resolve the issue,” adding, “We will listen to various voices from the public to devise a more reasonable plan.”
Concerns that uniformly increasing the tax burden for non-resident homeowners could lead landlords to pass on tax costs to tenants or evict current tenants to occupy the properties themselves have influenced the revision discussions. Conversely, eliminating the difference in basic deductions and broadly recognizing non-resident exceptions could weaken the reform's intent to reduce long-term benefits for high-value properties.
The Ministry of Economy and Finance plans to finalize the scope of revisions reflecting the discussions with the ruling party and submit the tax law amendment to the National Assembly on the 3rd of next month after meetings with deputy ministers and the Cabinet. However, issues not addressed at the government submission stage are likely to be further adjusted during the National Assembly review process.
* This article has been translated by AI.
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