Interview with Inguk Jeong, lawyer at Hanseo Law Firm
Utilizing the Special Taxation Act, income tax reduction for 5 years if you do business in Songdo
Real estate acquisition tax and ownership tax benefits… “Extraordinary benefits”
“Why are there so many famous YouTubers and streamers in Songdo, Incheon? Because they don’t have to pay a penny of income tax for five years and it’s advantageous when buying a house. I don’t think there’s any reason not to come.”
In-guk Jeong (pictured), a lawyer at Hanseo Law Firm, said in a recent interview with Hankyung.com, “This is a truly unconventional method of tax saving.”
The reason why YouTubers are flocking to Songdo, Incheon and other places is because of the ‘Special Taxation Restriction Act’. This law provides benefits for young people starting businesses. Youth as defined by the law refers to those aged 15 or older and 34 or younger. Special cases such as military service are also excluded for up to 6 years. In other words, you are considered a young person until the age of 40.
If they start a business outside of an overpopulation control area, they receive a 100% reduction in income tax for five years. The overconcentration control area is an area that is overly dense or is likely to be overly dense and requires maintenance for the proper placement of population and industry in Seoul and the metropolitan area.
Attorney Jeong In-guk said, “We know that the areas preferred by YouTubers are Songdo International City in Incheon and Yongin, Gyeonggi-do.” He added, “Songdo International City is the most developed and overpopulated area in Incheon, but it has been designated as a free economic zone to attract foreign investment. “Because Songdo International City is close to Seoul and has developed infrastructure, YouTubers prefer it,” he said.
He continued, “For example, if we assume that a YouTuber with a net income of 1.1 billion won receives only the basic deduction, a 45% tax rate is applied as he or she exceeds the highest tax base of 1 billion won, resulting in a tax of about 430 million won.” “It is a very unconventional tax-saving law that means you can save a significant amount of taxes for five years,” he emphasized.
Receiving a 100% income tax reduction is itself a huge benefit, but it doesn’t stop there. Under the local tax law, small and medium-sized businesses start-up are reduced by 75% of the acquisition tax for real estate purchased outside the overpopulation control area, and property tax is exempted for three years and only has to pay 50% for two years. Of course, this is the case when real estate related to business is acquired.
Housing prices in Songdo International City have not recovered from their peak. According to the Ministry of Land, Infrastructure and Transport’s actual transaction price disclosure system, 84㎡ exclusively for ‘Songdo The Shop First Park F15BL’ in Songdo-dong, Yeonsu-gu was traded for 1.097 billion won on the 8th. This is the area that soared to 1.47 billion won during the surge in housing prices in 2021. The following year, 2022, it fell to 880 million won and is rebounding. If you aim for the right time, you can reap market profits by investing in real estate.
Attorney Jeong said, “For example, if a YouTuber buys an apartment in Songdo and registers it as a place of business for a start-up small business, he or she only has to pay 25% of the acquisition tax when purchasing the house. For houses worth less than 600 million won, over 600 million won and less than 900 million won, 900 million won or less. He emphasized, “The acquisition tax rate is set at 1-3% depending on the category, such as exceeding 100 million won, but if you purchase a house worth less than 600 million won, the acquisition tax you have to pay is only 0.25%, which is 25% of the standard tax rate of 1%.”
He continued, “You don’t have to pay property tax for owning a house for three years, and then you only have to pay 50% for two years.” He added, “I bought an apartment in Songdo and made money for five years while doing streaming activities, and after five years, house prices would have rebounded.” “If you dispose of real estate at the right time, the tax savings will be maximized by automatically replenishing the capital gains tax exemption period (2 years),” he explained.
Not only YouTubers can receive these benefits. There is a wide range of industries that can receive tax reductions under the Special Tax Restriction Act, including manufacturing, construction, mail order, restaurant, information and communications, and social welfare service industries.
He said, “There are some restricted areas such as video room or entertainment center operation, news provision, etc., but there are many industries to which the Special Taxation Restriction Act applies.” He added, “This law itself supports small and medium-sized businesses, supports research and development, supports employment expansion, equal development between regions, and rural areas. “This is because it has various purposes, including support.”
The problem is that there are cases of abuse of this benefit due to the unprecedented tax saving benefit of ‘not paying a single penny in taxes.’ According to the National Tax Service, YouTuber A registered his business at an office in Songdo International City, Incheon, even though he broadcasts from Seoul, which only provides a 50% tax reduction. By abusing the tax reduction system for young start-ups and small and medium-sized businesses, they received a tax reduction through ‘disguised transfer’.
Mr. B, a sole proprietor, established a business under his spouse’s name, reported the closure of the business, and re-registered the business in his own name. Mr. C, while running the same business, received a tax reduction by closing the existing business and then re-opening it. did.
According to the National Tax Statistics Yearbook ‘Status of Tax Reduction Reports under the Restriction of Special Taxation Act’ published by the National Tax Service, the number of taxpayers who received tax reduction benefits for young entrepreneurs in 2022 is 64,639, and the amount of tax reduction is 484.067 billion won. In 2016, there were 12,019 people and 64.488 billion won, but compared to then, the number of people increased by 437.8% and the amount increased by 650.6%.
Attorney Jeong said, “The amount of tax reduced through the youth start-up tax reduction system alone is 480 billion won as of 2022, and the amount reduced is increasing every year.” He added, “The tax authorities are also aware that the system is so-called ‘hot.'” Tax avoidance “If you are caught, you may be subject to additional taxes in addition to the reduced income tax and acquisition tax, and in the case of tax evasion, you cannot avoid criminal punishment,” he pointed out. At the same time, he explained, “There is a need to be careful not to evade taxes beyond the scope of tax savings.”
Lastly, Attorney Jeong said, “The special tax system must be decided rationally within the scope of balancing tax equality with the policy purpose to be achieved,” and added, “Due to the nature of the YouTube creator industry, the job creation effect is not significant, but 100% income tax for 5 years.” He pointed out, “I think it is excessive to reduce taxes on real estate acquired for business purposes.”
He added, “There is a need for institutional supplementation, such as varying the reduction rate for each income group or determining whether or not to grant reductions in connection with the effect of job creation.”
master. Jipwoo (宇), house owner (宙), Saramin (人). The symbolism of a house in Korea is unique. A house, which should be a space for living and resting, has become something that can make you feel a sense of relative deprivation if you can’t get it because it is linked to financial investment at some point. Through ‘Lee Song-ryeol’s Astronaut’, we hear stories related to real estate from people. [편집자주]
Written by Lee Song-ryeol, Hankyung.com reporter [email protected]
Photo/Video = Hankyung.com Reporter Yoo Chae-young [email protected]
