South Korea unveils tax revisions targeting high-value homes and boosting key industries

South Korea on Monday unveiled a new set of tax code revisions centered on reducing tax benefits for owners of high-value homes, while extending support to businesses engaged in the domestic production of critical supply chain items.

The proposal, which requires approval from the National Assembly and the Cabinet, comes as the government seeks to adopt what it calls a more "reasonable" tax system for the property market, with a focus on owners of high-value homes amid the country's soaring real estate prices.

"The revision mainly focused on establishing a reasonable property tax system under the principle that homes are for living, not for buying," Finance Minister Koo Yun-cheol said during a press conference in the central city of Sejong last week, where the government briefed reporters on the tax code revision.

Koo said the revision aims to impose a heavier tax burden on owners of high-end homes, stressing that taxes on homes with a market value of between 2 billion won (US$1.39 million) and 3 billion won have actually decreased.

"The taxation of homes priced above 4 billion won or 5 billion won will be normalized," Koo said.

One of the major changes under the revision is a revamp of the tax rate system for the comprehensive real estate holding tax, shifting from a home count-based system to one based on the total value of homes owned.

"While the current tax system is based on the number of homes owned, we plan to change the framework to the combined value," said Jo Man-hee, a senior official of tax affairs at the finance ministry.

The tax rate for owners of one or two homes is currently set at 0.5 percent to 2.7 percent, lower than the 0.5 percent to 5 percent rate for owners of three or more homes. Starting in 2028, however, the rate will be unified at 0.5 percent to 5 percent regardless of the number of homes owned.

For example, under the current system, the rate for a tax base of 1.2 billion won to 2.5 billion won is 1.3 percent for owners of one or two homes and 2 percent for owners of three or more homes. Starting in 2028, the rate will be unified at 2 percent regardless of the number of homes owned.

The government will also raise the threshold for the comprehensive real estate holding tax from the current 1.2 billion won to 1.4 billion won in assessed value for single-home owners who live in the property, or the top 2 percent of homes.

This will exempt homes with a market value of up to about 2 billion won from the tax, according to the finance ministry.

For single-home owners who do not live in the property, however, the basic deduction will be lowered from 1.2 billion won to 900 million won.

The current capital gains tax deduction for long-term home ownership, which allows a deduction of up to 80 percent based on both the ownership and residence periods, with each providing a 4 percent annual deduction for up to 10 years, will be capped at 2 billion won starting in 2028 and further lowered to 1 billion won from 2029.

Starting in 2029, the deduction will be based solely on the homeowner's period of residence, with an annual deduction rate unified at 8 percent instead of separate annual rates of 4 percent each for ownership and residence.

The comprehensive real estate holding tax deduction for single-home owners will also shift its focus from ownership to residency, offering a tax credit of up to 50 percent based on the period of residence.

While the tax credit is currently uncapped, a ceiling of 8 million won will apply in 2027, before being lowered to 6 million won from 2028.

Instead, for homes valued below 3 billion won and owned for 10 or more years, the basic capital gains tax deduction will be raised tenfold, from the current 2.5 million won to 25 million won.

The government also proposed temporarily lowering capital gains taxes for homeowners aged 65 or older who sell their homes in the greater Seoul area and purchase new ones outside the region, offering a deduction of up to 500 million won in 2027 and up to 300 million won in 2028.

"The revision is aimed at normalizing excessive tax benefits and is not intended to stabilize housing prices," Jo said. "However, I believe it will encourage owners of multiple homes to put more properties on the market, which could have some stabilizing effect on the housing market," Jo added.

Other major proposals included in the tax code revision include establishing a new tax incentive for industries seeking to expand domestic production in key sectors, namely solar energy, wind power, secondary batteries, semiconductors, key materials and components, and artificial intelligence (AI) robots.

Related companies will be eligible for income and corporate tax credits based on the amount of their domestic production through the end of 2036.

South Korea will also reorganize its location-based tax incentive scheme for start-ups, which is currently divided into the greater Seoul area and other regions, by splitting the current non-capital region into three categories and offering more tax benefits to businesses established in more preferential areas.

The government will additionally revamp the hydrogen category under its list of national strategic technologies into a broader "future-oriented energy" category, expanding its scope to include small modular reactors (SMRs).

To bolster the competitiveness of small and medium-sized enterprises, the government will gradually phase out tax benefits for small companies that grow into medium-sized enterprises by introducing a three-year phase-out period after the current five-year grace period.

The finance ministry, meanwhile, said the latest tax code revisions will generate an additional 3.44 trillion won in tax revenue from 2027 through 2031, due mainly to higher comprehensive real estate tax earnings.

The tax code proposals will go through Cabinet review on Sept. 1, with the government aiming to submit them to the National Assembly by Sept. 3.