Full Acquisition Tax Exemption for Converting Vacant Commercial Properties to Housing… Measures to Block High-End Home Tax Avoidance

The South Korean government has decided to fully exempt acquisition taxes imposed when vacant commercial properties and underutilized non-residential facilities are converted into residential units. The Ministry of the Interior and Safety announced on the 26th that acquisition taxes levied on the increase in building value when non-residential facilities undergo major renovations for residential conversion will be temporarily exempted through 2027.

The measure is aimed at increasing housing supply by converting commercial properties with high vacancy rates, underutilized Knowledge Industry Centers, and lodging facilities with low occupancy into residential units. For example, if a Type 1 or Type 2 neighborhood living facility is repurposed into a residential officetel, the 2% acquisition tax imposed on the increased value will be fully exempted.

Looking at the current status of non-residential facilities, 1,100 of the nation’s 1,500 Knowledge Industry Center buildings are concentrated in Seoul and Gyeonggi Province. Seoul has the most office facilities at 11,000 buildings, followed by Gyeonggi with 6,800, Busan with 5,100, and Daegu with 2,900. Neighborhood living facilities are distributed across Gyeonggi with 210,000 buildings, Seoul and Busan with 100,000 each, and Daegu with 60,000.

The ministry has simultaneously revised standards to prevent avoidance of the heavy acquisition tax on luxury homes. The current heavy taxation criteria are centered on exclusive floor area, which has led to cases where spaces that are nominally common areas are effectively used as exclusive areas.

In fact, there is an apartment in Seoul with an exclusive area of 244.34 square meters—just under the 245 square meter taxation threshold—but with a common area of 402.58 square meters, 1.6 times the exclusive area. The apartment’s assessed value is 8.5 billion won (approximately $6.1 million), with an actual transaction price of 12.1 billion won (approximately $8.7 million). To prevent such loopholes, the ministry has decided to include common areas exceeding the exclusive area as part of the exclusive area. However, essential facilities such as parking lots, playgrounds, and daycare centers have been excluded from the heavy taxation criteria.

The heavy acquisition tax threshold for luxury homes is an assessed value of 1.2 billion won (approximately $870,000) or a market value of 1.8 billion won (approximately $1.3 million) or higher.

Legal Grounds Established for Exit Bans and Detention of Non-Tax Revenue Delinquents

The ministry has also decided to establish legal grounds for requesting exit bans and detention of high-value, habitual delinquents on non-tax revenue. This measure takes into account that the non-tax revenue collection rate stood at 85.3% as of 2024, lower than the local tax collection rate of 95.7%.

Specifically, individuals who owe more than 30 million won are expected to be subject to exit bans, while those who have failed to pay 50 million won or more on three or more occasions over a period of at least one year are expected to be subject to detention requests. The ministry explained, “The National Assembly is currently discussing legislation on various measures including exit bans and detention targeting non-tax revenue delinquents,” adding that “discussions need to reflect constitutional proportionality principles and consistency with tax laws.”

Tax Reform Package for Non-Resident Single-Home Owners Faces Difficulties

Meanwhile, the government’s plan to strengthen the Comprehensive Real Estate Tax and Capital Gains Tax on non-resident single-home owners is facing difficulties due to the ruling party’s request for revisions. Earlier this month, the government proposed through its tax reform package to reduce the basic Comprehensive Real Estate Tax deduction for non-resident single-home owners from an assessed value of 1.2 billion won to 900 million won (approximately $650,000), and to abolish the holding period deduction within the Long-Term Holding Special Deduction.

However, the ruling party requested at a high-level party-government meeting on the 23rd to “not distinguish between residents and non-residents.” A senior government official said, “We are internally discussing whether to abolish the distinction between residents and non-residents or to ease the distinction to some extent.” Another government official said, “Rather than completely abolishing the residency distinction, we are leaning toward reducing disadvantages for non-residents.”

Within the ruling party, hardline lawmakers are arguing that the key elements of the government’s original proposal should be maintained. A senior lawmaker from a Seoul district said, “If someone holds a non-resident single home for speculative purposes, they should be regulated,” adding, “I do not agree with the party’s policy of requesting revisions to the tax reform package.”

There are three main points of contention. First is the basic Comprehensive Real Estate Tax deduction. Under the government’s proposal, the basic deduction for resident single-home owners would be eased from an assessed value of 1.2 billion won to 1.4 billion won (approximately $1.0 million), but for non-residents it would be reduced from 1.2 billion won to 900 million won. The basic Comprehensive Real Estate Tax deduction is determined solely by residency status on June 1, the tax base date, without considering the duration of residence. This raises the problem that individuals who have lived in the same home for 10 to 20 years or more but became non-residents due to unavoidable reasons such as job transfers or childcare would be subject to tax increases aimed at speculators.

The basic deduction for jointly owned non-resident single homes is also a point of contention. Jointly owned residents maintain an 1.8 billion won basic deduction, but non-residents face a significant reduction to 900 million won. The Korean National Council of Women issued a statement saying, “If joint ownership becomes less advantageous than sole ownership, it would run counter to the spirit of gender equality.”

Second is the abolition of the Long-Term Holding Special Deduction. This deduction allows up to 80% of capital gains to be deducted when paying Capital Gains Tax if a property has been held and resided in for 10 years. The plan to completely eliminate the holding period deduction (up to 40%) has drawn complaints that it leads to excessive tax increases on unavoidable non-residents. Measures to expand the scope of residency recognition are being discussed in response.

Third is the issue of reverse discrimination against Seoul in residency recognition requirements. Under the current government proposal, in Seoul and Gyeonggi—where Comprehensive Real Estate Tax payers are concentrated—only moves that cross city or county boundaries are recognized as “unavoidable non-residency.” In contrast, moves between districts within metropolitan cities, Sejong Special Self-Governing City, and between dong, eup, and myeon within Jeju Special Self-Governing Province can be recognized as residency. This means that owners of expensive homes outside the capital region can rent out their existing home and move to a nearby neighborhood while still being recognized as actual residents.

Critics point out that not recognizing unavoidable moves within Seoul—such as for childcare of infants or grandchildren—as residency constitutes reverse discrimination against Seoul. While moves between Hanam and Seongnam in Gyeonggi Province and Songpa District in Seoul within the same living area of Wirye New Town are recognized as meeting residency requirements, a homeowner in Seoul’s Gangdong District who moves to Gangseo District would not receive the benefit. According to the National Tax Service, 60.7% of housing-related Comprehensive Real Estate Tax payers last year were Seoul residents.

In the tax reform package, the government has proposed recognizing high school or university enrollment, school transfers due to bullying, and caring for parents for more than one year as unavoidable non-residency, with up to three years of such periods counted toward residency duration. The government is also considering adding other reasons such as marriage and childcare as unavoidable circumstances. With the deadline for submitting legislation to the National Assembly approaching early next month, the government’s deliberations are deepening.