Acquisition and Registration Tax will be Lowered to a Maximum of 1 Percent

Acquisition tax and registration tax rates which you pay when purchasing houses are expected to be lowered by 0.5 to 1.0 percent (total rates of other taxes) from the current rates, starting as early as 2006.

“We are considering to introduce measures to cut down transaction taxes(acquisition and registraton tax) as property and aggregate land tax which is property holding taxes and capital-gains tax on real-estate transactions increased according to ‘the comprehensiv countermeasures to stabilize the real-estate market’ announced October 29,” said Kim Dae-young, local tax manager in the Ministry of Home Affairs on Oct. 4.

“Immediately lowering the acquisition and registration tax may cause a slip up in tax revenues, so the concrete tax rate adjustment won’t be possible by 2006 when the ‘report system on the house transaction’ in which you have to report the real apartment purchasing price is done,” he added.

The current acquisition tax rate and registration tax rate is 2 percent and 3 percent, respectively. Therefore, total tax rates are expected to be lowered to 4.0 to 4.5 percent from the current 5 percent rate.

According to these systems above, those who purchase houses after 2006 will have a decreased tax burden as long as the taxation standard (higher price between acquisition report price and standard price of the local tax taxation market price) doesn’t change.

For example, if someone who purchased apartment at 600 million won reported purchasing it at 400 million won, he is subject to pay a total amount of 23.2 million won which sums the 8 million won in acquisition tax (2 percent), 12 million won in registration tax (3 percent), 0.8 million won in special tax on the agriculture and fishery (10 percent of the acquisition tax), and 2.4 million won of local education tax (20 percent of registration tax) at present.

Meanwhile, he is subject to pay total amount of 18.6 million won which sums the 6 million won in acquisition tax (1.5 percent), 10 million won in registration tax (2.5 percent), 0.6 million won in special tax, and 2 million won in local education tax if acquisition and registration tax are lowered by 0.5 percent each.

In addition to this, if registration tax decreases more than the acquisition tax, then the local tax is lowered to decrease the tax burden.

However, tax may increase if the reporting system on the real purchasing price is well established as tax rate is applied based on 600 million won of real purchasing price.

The total tax under this system is 27.9 million won, including 9 million won in acquisition tax (1.5 percent), 15 million won in registration tax (2.5 percent), 0.9 million won in the special tax, and 3 million won in local education tax.

Jin-Hup Song Jong-Hoon Lee jinhup@donga.com taylor55@donga.com