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Tax crackdown directed at landlords

Sept 17,2018
On top of the tough measure designed to cool down the real estate market announced last week, the government is also cracking down on landlords allegedly evading tax.

The National Tax Service Sunday said it has tracked down 1,500 people suspected of tax evasion using a system that it developed on income made by renting apartments.

The agency said the crackdown was conducted ahead of an income tax exemption given to multiple apartment owners that expires next year.

The government since 2014 has not taxed income made from apartment rents that were less than 20 million won ($17,838) a year.

The tax agency said it has particularly targeted owners of multiple apartments or very expensive apartments.

According to the tax agency an alleged wrongdoer, who wasn’t identified, owned many apartments nationwide - 60 units - that were registered under the names of relatives. Despite making large sums of money from monthly rents, the person did not report the rental income to the government.

That individual sold one or more apartments and managed to shrink the capital gains tax by colluding with an interior design company that provided false receipts for extensive repair work.

Such repair work can be deducted from the profit from an apartment sale. The government charged that individual with new income taxes of roughly 700 million won.

In another case, an individual who owns a trading company either deposited business payments from overseas partners in his personal bank account or falsified the accounting to make it appear as if the payments were spent on expenses. That money was used to buy six high-end apartments.

The rent paid by their tenants was deposited in bank accounts registered under the names of the individual’s relatives.

Some even used foreigners to evade tax.

An owner of 17 high-end housing units known as villas in Korea in the Itaewon neighborhood were rented out to foreigners. Unlike Korean tenants, who report their monthly rent to the government, foreigners do not. The tax agency found the individual made 700 million won from foreign tenants and failed to report it.

In June 2014, the Park Geun-hye government exempted rental income of less than 20 million won a year in hopes of freeing up a frozen real estate market.

The exemption was supposed to expire in 2016 but was extended until the end of this year.

The Moon Jae-in government in July announced that it will no longer extend the exemption for rental income of less than 20 million won. However, in hopes of preventing a panic that broke out in early 2014, the government said it will ease the tax burden on those that register their rental incomes.

The current administration see speculators who own multiple apartments as being responsible for a recent hike of apartment prices.

Despite the Moon administration’s many attempts to cool off the real estate market, it has had little success and apartment prices in affluent neighborhoods keep going up.

The announcement by the Seoul metropolitan government earlier this year of large-scale redevelopment projects in Yeouido and Yongsan only added to the overheating.

After the government put tougher regulations on mortgages, many property owners have registered as housing rental business to have easier access to loans.

The regulations for borrowing are lighter for such businesses.


BY LEE HO-JEONG [lee.hojeong@joongang.co.kr]