2026 Tax Revision Bill: Part 2 1. Supporting a Rebound in Potential Growth 2. Supporting Households and Regional Development 3. Advancing Tax Reform for a Fairer Tax System 4. Modernizing the Tax System and Enhancing Taxpayer Convenience 3. Advancing Tax Reform for a Fairer Tax System ○ Normalizing the Tax Burden on Non-Owner-Occupied and High-Value Residential Properties ① Capital Gains Tax: Replacing the “Holding Deduction” with a “Residence Deduction” Single-Home Households Multi-Homeowners (Non-Designated Adjustment Areas) 2027 2028 2029 onward 2027 2028 2029 onward Residence: 4%/year Residence: 6%/year Residence: 8%/year Residence: 2%/year Residence: 2%/year Holding:4%/year Holding:2%/year Holding:2%/year Holding:1%/year Up to 80% over 10 years Up to 30% over 15 years Up to 15% or 30% over 15 years Up to 30% over 15 years No cap KRW 2 billion KRW 1 billion No cap KRW 2 billion KRW 1 billion ② Comprehensive Real Estate Holding Tax: Adjusting the Basic Deduction for Residential Properties Category Current Revised Owner-Occupied Single Home KRW 1.2 billion KRW 1.4 billion(Homes with an assessed value of up to KRW 1.4 billion, approximately KRW 2 billion in market value, are exempt) Non-Owner-Occupied Single Home KRW 900 million(Homes with an assessed value of up to KRW 1.4 billion, approximately KRW 2 billion in market value, are exempt) Others KRW 900 million KRW 400 million + (KRW 500 million × value of owner-occupied homes / total home value) [Homes with a combined assessed value of up to KRW 900 million (approximately KRW 1.3 billion in market value) are exempt.] 3. Advancing Tax Reform for a Fairer Tax System ○ Supporting Long-Term Residents, Older Homeowners and Homes in Regional Areas, while Facilitating Home Sales by Multi-Homeowners ① Capital Gains Tax: Increasing the Basic Deduction for Long-Term Owner-Occupied Single Homes Current -> Revised KRW 2.5 million per year KRW 25 million per year(For homes sold for KRW 3 billion or less) ② Capital Gains Tax: Introducing Temporary Special Tax Treatment for Owner-Occupied Single-Homeowners Aged 65 or Older Resided in the Seoul metropolitan area for at least 5 years Upon sale and relocation: 50% reduction in 2027 (up to KRW 500 million) and 30% reduction in 2028 (up to KRW 300 million) Non-Capital Region ③ Capital Gains Tax: Temporarily Easing Higher Capital Gains Tax Rates on Homes in Designated Adjustment Areas Owned by Multi-Homeowners Category Current 2027 2028 2029 Two-Homeowners Basic rate (6~45%)+20%p +5%p +10%p +20%p Three-or-More- Home Owners Basic rate (6~45%)+30%p +10%p +15%p +30%p 3. Advancing Tax Reform for a Fairer Tax System ○ Reforming Family Business Succession Tax Relief and Supporting Business Succession ① Revising the Eligibility and Requirements for Family Business Succession Tax Relief Key Proposed Changes New Definition of “Family Business” “Family business”: A business possessing specialized technologies or management know-how Eligible Industries ○ Select 727 eligible industries for family business succession tax relief - Exclude supermarkets, bus and taxi transportation, parking businesses, warehousing, hospitals, pharmacies, etc. ○ Businesses designated as Long-Established Small Businesses or Distinguished Long-Standing Companies will be deemed to satisfy the industry requirements Operation Period Requirement ○ Increase the decedent’s required business operation period from 10 years to 30 years ○ A public-private review committee will review and approve whether a business qualifies as a family business ② Introducing Special Tax Treatment to Support Third-Party Business Succession. Seller The largest shareholder, aged 60 or older, of an SME or mid-sized company in an industry eligible for family business succession tax relief, who has operated the business for at least 20 years → 20% reduction in capital gains tax on the transfer of shares and business-use assets Buyer An individual or company that has operated in the same industry as the business being transferred for at least 10 years, or an executive or employee who has worked for the business being transferred for at least five years → 10% reduction in individual or corporate income tax for five years ○ Rationalizing Tax Exemptions and Reductions Termination Terminate long-standing or routinely extended tax expenditures with low effectiveness. e.g., individual consumption tax reduction for hybrid vehicles; VAT refunds for accommodation services provided to foreign tourists Conversion to Direct Fiscal Support Convert tax incentives to direct fiscal support, taking into account redistribution effects and support efficiency. e.g. Tax credits for childbirth and adoption; marriage tax credit Restructuring Restructure tax incentives that remain necessary in line with their policy objectives. e.g., add a residence requirement for the income tax deduction for interest payments on long-term mortgage loans; increase the flat income tax rate for foreign workers; revise the VAT credit for credit card sales Permanent Support Make tax incentives requiring continued support permanent. e.g. Income deduction for housing subscription savings; special tax treatment for agricultural cooperative corporations 4. Modernizing the Tax System and Enhancing Taxpayer Convenience ○ Rationalize the Tax System ① Unifying the Tax Treatment of Treasury Shares as Capital Transactions Current -> Revised Corporate Taxation Capital gains taxed upon disposal (asset transaction) Excluded from taxation (capital transaction) Shareholder Taxation Treasury Shares Acquired for Cancellation Deemed dividend taxed when a corporation acquires and cancels its treasury shares (capital transaction) Deemed dividend taxed* when a corporation acquires its treasury shares (Capital Transaction) Treasury Shares Acquired for Disposal Capital gains taxed when a corporation acquires its treasury shares (asset transaction) * Capital gains are taxed when treasury shares are acquired through the stock exchange. ○ Preventing Tax Avoidance and Evasion and Enhancing Taxpayer Convenience ① Expanding Rewards for Reporting Tax Evasion and Concealment of Assets Current -> Revised Amount of Additional Tax Assessed Reward Rate Amount of Additional Tax Assessed Reward Rate KRW 50 million (KRW 20 million for customs duties) – KRW 500 million 20% KRW 30 million (KRW 10 million for customs duties) – KRW 500 million 30% KRW 500 million – KRW 2 billion 15% KRW 500 million – KRW 2 billion 20% KRW 2 billion – KRW 3 billion 10% KRW 2 billion or more 10% Over KRW 3 billion 5%