Taxation Restructuring
The South Korean government is planning to implement global taxation on financial income on a larger scale than now. At present, the global taxation on financial income is applied only to the financial income that exceeds 20 million won a year and any financial income equal to or less than 20 million won a year is subject to a relatively low withholding tax rate of 14%. However, the government is likely to lower the threshold to 10 million won in July this year so that more financial income can be covered by global taxation.
This has to do with President Moon Jae-in’s campaign pledge. During his election campaign, he promised to impose more taxes on the capital gains of wealthy individuals, saying that keeping this promise for an increase in tax revenue and welfare spending would start from the replacement of the separate taxation with global taxation. In the long term, financial income is expected to become completely subject to global taxation in the current administration.
The Moon Jae-in government is forecast to reduce tax benefits for real estate rental income, too. “At present, 60% of real estate rental income is regarded as necessary expenses and a deduction of four million won is additionally provided,” said Hongik University professor Kim Yu-chan, adding, “This is an excessive privilege negatively affecting the principle of equality in taxation.” He is one of those designing the taxation policy of the government.
Currently, real estate rental income equal to or less than 20 million won a year is free from taxation in South Korea and this law is scheduled to remain in effect until the end of 2018. In view of the President’s promises, however, separate taxation at a low rate is likely to become effective in the following year.
Furthermore, the South Korean government is mulling over an increase in the tax rate that is applied to gains from the transfer of shares by major shareholders with a shareholding ratio of at least 1% and a market capitalization of at least 2.5 billion won. Under the current tax law, the major shareholders are subject to a single tax rate of 20% when it comes to that type of gain and income tax payers have complained about this single tax rate.