In the future, if new campsites or pensions are created in areas with population decline, acquisition tax and property tax will be fully exempt for five years. The implementers and tenants of industrial, logistics, and tourism complexes in areas with population decline will also receive a maximum reduction of 75% in acquisition and property taxes, respectively. Moreover, corporations operating in areas with population decline will receive greater tax benefits the more resident workers they employ.
The Ministry of the Interior and Safety announced the '2025 local government tax reform plan' containing these details on the 28th. This reform plan focuses on strengthening various tax benefits mainly for regions experiencing population decline and non-capital areas. It is scheduled to be submitted to the National Assembly in early October after going through Vice Minister and Cabinet meetings next month.
◇ The more business sites are built in areas with population decline, the greater the tax benefits
First, the tax reduction benefits provided when creating industrial and logistics complexes will be reconfigured to prioritize areas with population decline, non-capital areas, and then capital areas. For instance, when creating an industrial complex, acquisition tax and property tax of 35% will be granted to implementers in capital areas (for tenants, 50% and 35%), while non-capital areas will enjoy a 35% reduction in acquisition tax and a 60% reduction in property tax. However, this time, 'areas with population decline' will be classified separately, allowing for a 50% reduction in acquisition tax and a 60% reduction in property tax. Those located in industrial complexes in areas with population decline will receive a 75% reduction in both acquisition tax and property tax. In return, the reduction rates for capital and non-capital areas will decrease.
Additionally, the existing Knowledge Industry Complexes, venture corporations, and corporate-affiliated research institutions have been granting certain reductions in acquisition tax and property tax regardless of regional distinctions, but this amendment will reduce the reduction rate for capital areas. On the other hand, small and medium-sized enterprises establishing corporate-affiliated research institutions in non-capital areas will receive an additional 10 percentage points of tax reduction.
In areas with population decline, the acquisition tax and property tax for real estate established for new businesses or business sites will be fully exempt for five years, and afterward, a 50% reduction will apply for an additional three years, which will be extended until 2028. This exemption will include not only the existing 32 industries like mining and manufacturing but also campsites and tourism pensions.
It has also been decided to grant more tax benefits to business sites located in non-capital areas and areas with population decline that create more jobs. When small and medium-sized enterprises in non-capital areas provide 'long-term service bonuses' to workers who have worked for more than three years, a portion of the resident tax that the employer has to pay will be deducted based on the number of recipients of the bonuses. Corporations with headquarters or branches located in areas with population decline will also receive reductions in corporate local income tax proportional to the number of employed workers.
Tax benefits to revitalize vacant houses in regions will also be added. For land from which abandoned vacant houses are demolished, property tax will only be applied at a 50% rate for five years. Moreover, for newly constructed dwellings and buildings within three years after demolition, acquisition tax will be reduced by 50% up to a limit of 1.5 million won. Furthermore, the 'Second Home' tax preferential treatment, which expands to areas of concern regarding population decline, like Gangneung and Iksan, is expected to proceed as planned under the 'Local-centric Construction Investment Reinforcement Plan' announced on Aug. 14.
◇ Reduce tax burdens for employers hiring 'substitute personnel' during parental leave
The government is also pushing for a local government tax reform to support birth and childcare. Not only for those on parental leave but also for 'substitute personnel' salaries will be excluded from the resident tax assessment boundaries to alleviate the burden on employers, and the full exemption of acquisition tax (up to 5 million won) for dwellings for birth and childcare will also be extended until 2028. Additionally, the exemption measure for first-time home purchases will also be extended, with the exemption limit raised to 3 million won for dwellings in areas with population decline.
In addition, it has been decided to extend the acquisition and property tax reduction measures for public institutions such as the Korea Agro-Fisheries & Food Trade Corporation (aT), local agricultural and fisheries product corporations, Korea National Railway, Korea Railroad Corporation (KORAIL), and local urban railway corporations. This is a measure to stabilize the prices of agricultural and marine products and local public fees. Furthermore, the introduction of a measure to exempt acquisition and property tax for two years for non-mandatory sprinkler accommodation facilities that install sprinklers will also be established this time.
The Ministry of the Interior and Safety estimated that the local government tax reform would yield an additional 100.3 billion won in revenue per year. Although there will be a decrease of 27 billion won due to the expansion of exemptions for areas with population decline and support for childbirth and childcare, there will also be an increase factor of 127.3 billion won due to the reduction of tax benefits and adjustments in tax rates. One example of an increase in revenue is the increase of 0.1 percentage points for the tax rate applicable to all brackets of corporate local income tax.