Foreign residents likely to get housing tax credits

Finance Minister Hong Nam-ki, second from right, announces the tax reform, which included taxing on cryptocurrency investment profits, during a press briefing on July 22 at the government complex in Sejong. [YONHAP]

Foreigners living in Korea may soon be eligible to receive tax credits on housing rent and loans under new legislation that passed the National Assembly's Strategy and Finance Committee on Monday.

The committee also agreed on legislation to push back the introduction of tax on profit made from cryptocurrency investments to the start of 2022 and to increase the maximum tax rate imposed on high income earners from 42 percent to 45 percent.

According to the Finance Ministry on Monday, lawmakers on the Strategy and Finance Committee held a meeting on Monday and passed 16 tax reform bills including those on income tax and corporate tax.

One of the biggest changes was the delay of the taxation on virtual assets including bitcoin.

When the government announced its tax reform plans in July, it said it would tax profits from virtual assets starting in October next year.

However, the government on Monday said it has decided to push back the date of implementation as it needed more time to set up the taxation system.

The tax rates haven’t changed.

Starting 2022, the government will impose a 20 percent tax on profits made on virtual asset investments throughout the year.

However, taxation will only be applied to annual profits exceeding 2.5 million won ($2,300).

Foreigners living and working in Korea will be able to receive tax credits on their year-end tax settlements on housing funds including mortgages, home purchase savings and monthly rent, which has previously only been available to Koreans.

The government said these changes were made to help stabilize the housing situation for foreign workers in Korea.

Under the revised tax legislation, starting next year the maximum income tax rate will be raised from 42 percent to 45 percent. This is the second time that the current government has raised the tax rate against top income earners.

The maximum income tax rate applies to those that make more than 1 billion won a year.

Those that make between 500 million won and 1 billion won will be taxed at 42 percent.

The Moon Jae-in government has been increasing the tax burden on the top income tier since it took office. The maximum income tax rate was raised from 40 percent to 42 percent in the first year of the current administration in 2017.

The government estimates that the 45 percent tax rate will be imposed on roughly 16,000 people, which is the top 0.05 percent.

Other bills that were passed included extending tax credits on landlords that lower rent for another six months.

Some of the reform plans that the government had earlier announced did not pass the committee.

One was taxation on companies’ internal reserves. The government initially announced that it plans to tax corporate internal reserves on companys with an owner family that has a stake exceeding 80 percent or a company in which one stakeholder owns a 100 percent stake in the company.

According to the Finance Ministry, companies that are wholly owned by a single stakeholder as of 2019 amounted to 280,000, or 32.2 percent, of companies in the country. That’s a sharp increase from 10 percent in 2010.

The goal is to encourage companies to use those reserves on employees or investments. Additionally, some have used the system to reduce their tax burden by opening up a paper company as income taxes face a higher rate compared to corporate taxes.

However, the move received a strong backlash, especially from SMEs, the majority of which are likely to face the extra taxation.

Other areas that did not see changes included raising taxes on liquid nicotine products. The government earlier proposed imposing a 740 won tax on 1 liter (33 fluid ounces) of liquid nicotine. However, the legislation that passed the National Assembly’s committee keeps the tax at the current 370 won.

The reform bills need to pass the legislation and judiciary committee before being put to vote on the main floor of the National Assembly.

While the date has not been set, the government is targeting passing the reformed tax bills within this month, possibly as early as this week.

BY LEE HO-JEONG [lee.hojeong@joongang.co.kr]