The criteria for dwellings eligible for the monthly rent tax credit for large families will be relaxed. The tax rate for recipients of life annuities and long-term pensions will be lowered. Meanwhile, the tax exemptions for farmers and fishermen will be adjusted based on income, and high-income members will have to pay taxes under the newly introduced low-rate separate taxation.
On the 31st, the Ministry of Economy and Finance held a meeting of the Tax Policy Development Committee and finalized the '2025 Tax Reform Plan.' Deputy Minister Lee Hyung-il noted, "We will normalize the weakened revenue base and operate the tax system according to the principle of ability to pay," adding that "tax expenditures will be selectively supported only in necessary areas."
◇ Dwellings eligible for monthly rent deduction expand for households with three or more children
The monthly rent tax credit for households without homes will relax the criteria for dwellings only for households with three or more children. Previously, tax credits were applied only to dwellings with a usable area of 85 square meters in the metropolitan and urban areas and 100 square meters in others; however, with this revision, households with three or more children can receive tax credits for dwellings up to 100 square meters without regard to the region.
The exemption period for value-added taxes on management services for multi-family housing with a usable area of 135 square meters or less in town and village areas will be extended by three years until December 31, 2028. Multi-family housing with a usable area of 85 square meters or less will be permanently exempt from taxes, and the exemption period for value-added taxes on happy dormitories will also be extended by three years.
Tax support for housing subscription savings for youth and renters will continue. Households without homes, where the total annual salary is 70 million won or less, and their spouses can receive a 40% income deduction on their savings contributions (with a contribution limit of 3 million won), while young heads of household without homes with a total annual salary of 36 million won or less can receive tax exemption on interest income up to 5 million won. This provision will be extended until the end of 2028.
◇ Life annuity tax rate reduced to 3%… up to 50% discount for long-term recipients
For private pensions received in life form, the withholding tax rate will be reduced from the current 4% to 3%. The previous age-based tax rates were 5% for those aged 55 to 69, 4% for those aged 70 to 79, and 3% for those aged 80 and over, but life recipients will have the lowest tax rate of 3% applied.
The discount rate for long-term receipt of retirement income paid into a pension account will also be expanded. The discount rate compared to the lump sum receipt was 30% for periods of up to 10 years and 40% for more than 10 years; however, under this revision, a new 50% discount period has been established for periods exceeding 20 years.
The application period for tax incentives on tax-free comprehensive savings will be extended by three years until 2028. However, the eligibility will be restricted from all seniors over 65 to only those receiving basic pensions. The provisions for the disabled and recipients of the basic livelihood guarantee will remain the same. A Ministry of Economy and Finance official explained that "the tax-free system, which was open to all seniors, has been restructured to focus on the low-income vulnerable classes."
◇ Tax support for farmers and fishermen readjusted… high-income members face low-rate separate taxation
The tax exemption system for interest and dividend income from the deposits and investments of mutual financial institutions (such as NongHyup, Suhyup, and forestry cooperatives) will only be maintained for cooperative members and quasi-cooperative members with a total salary of 50 million won or less. High-income quasi-cooperative members with a total salary exceeding 50 million won will be subject to a low-rate separate taxation of 5% starting in 2026 and 9% starting in 2027. The same standards will apply to members of credit cooperatives and Saemaul Geumgo.
A Ministry of Economy and Finance official noted, "Concerns about equity have been raised as high-income quasi-cooperative members receive more tax benefits than cooperative members," adding that "exemptions will be focused on low-income groups with income requirements, while low-rate separate taxation has been applied to reduce the shock when transitioning to taxation."
Currently, individuals who have planted and nurtured trees on forest land (reforested areas) for more than five years receive tax exemptions on income from logging or transferring these trees up to 6 million won annually, but this limit will be significantly raised to 30 million won. The intention is to expand tax support for income generated through forestry management.
When agricultural people contribute farmland to agricultural cooperative corporations or agricultural companies, the existing method of tax reduction on capital gains tax will be converted to the deferred taxation method. This means that there will be no taxation on the individual, and when the corporation that acquires the farmland disposes of it, the tax will be paid as corporate tax.
The zero-rate and exemption period for value-added taxes on agricultural and fishery equipment will also be extended by three years until 2028. Furthermore, to prevent improper benefits, individuals who receive equipment not related to agriculture or fisheries will also be subject to the zero-rate recapture. In this case, the relevant value-added tax and additional tax (10%) will be imposed.
The income tax exemption provisions for interest income and savings incentives on savings for farmer families will also be extended by three years until 2028. Upon maturity of the savings, the average balance during the savings period will be multiplied by the interest rate (0.9% to 4.8%) for payment.