The National Assembly is pushing to extend tax reductions for real estate developers implementing urban development projects. When undertaking development projects, developers own some land or apartments to be sold in order to prepare for possible project costs, and this land is referred to as 'land reserved for development.' Currently, a 75% reduction in acquisition tax is granted for such reserved land, but as this reduction measure ends at the end of this year, an extension for an additional two years is being sought.
According to the National Assembly on the 1st, Democratic Party lawmaker Seo Young-gyo and 13 others proposed an amendment bill to the 'Local Government Tax Special Cases Restriction Act' on August 12.
The amendment contains provisions to extend Article 74 of the Local Government Tax Special Cases Restriction Act, which sunsets on December 31 of this year, concerning 'reductions for urban development projects,' for an additional two years until December 2027. This clause grants a 75% reduction in acquisition tax on reserved land or land designated for development that is acquired by developers in urban development projects, and similarly provides reductions for acquisitions made for residential environment improvement projects such as redevelopment and reconstruction. Reserved land includes land left for disposal or use by the developer as needed, and includes land designated for security purposes.
The lawmakers noted, "There are concerns that a gap in policy support for local development and balanced growth might arise after the sunset deadline at the end of this year," and added, "Especially, the demand for continuous tax support is growing to strengthen the regional growth base and secure competitiveness."
The reduction of acquisition tax for reserved land in urban development projects began on January 1, 2020. A National Assembly official explained, "The Public Administration and Security Committee will discuss this," saying, "The reduction period ends at the end of this year, and since it helps the developers, we are looking to extend it further."
In the industry, there are many opinions that the sunset extension is necessary for development projects due to the significant benefits of the reductions. Reserved land is often not acquired for development profits but is instead acquired out of necessity to prepare for urgent situations such as lawsuits, and if acquisition tax increases, it raises the burden on developers.
Lee Jeom-ok, the head of asset management consulting at Shinhan Investment Corp. (tax accountant), said, "The acquisition tax reduction rate reaches 75%, so they only need to pay 25% of the tax," adding, "This is an important reduction benefit for eligible developers." It means that if the tax owed is 100 million won, they would only need to pay 25 million won and receive a reduction of 75 million won.
Park Young-pil, executive director of the Korea Developer Association, stated, "Large-scale development projects involve significant tax amounts, and the benefits of reductions are directly linked to the profit scale of developers, so finance executives of major developers are very interested in whether the acquisition tax sunset for reserved land will be extended." Kim Seung-bae, CEO of Fides Development, also remarked, "There are many projects in urban development, including residential environment improvement projects that have public significance, and reducing taxes that obstruct these is a necessary measure to ensure smooth project progress."