This article is a contribution from the accounting firm Milestone. If you would like to share quality content for startups in the form of a contribution, please contact the Venture Square editor team at editor@venturesquare.net.
In the process of acquiring real estate such as offices and factories to establish a business foundation, taxes such as acquisition tax are a significant burden. Therefore, the Local Tax Special Exceptions and Restrictions Act has provisions to reduce acquisition tax for startups and small and medium-sized enterprises or venture companies that meet certain requirements. However, the reduction is not applied simply because they have been confirmed as a venture company, but must fall under the category of industries subject to reduction and be included in the scope of “start-up” under the law. Therefore, whether a person who previously operated a private business can be recognized as a start-up and receive tax reductions for the corporation is often a point of contention.
Acquisition tax reduction target and reduction rate
According to Article 58-3 of the Local Tax Special Measures Act, among the venture companies established, companies designated by Presidential Decree, and confirmed as venture companies under Article 25 of the same Act within three years from the date of establishment, the following local tax reduction benefits are available for real estate acquired within four years from the date of initial confirmation (within five years in the case of youth start-up venture companies designated by Presidential Decree).
1) 75% reduction in acquisition tax
2) Exemption from property tax for 3 years from the date of confirmation, and 50% reduction for the following 2 years
Whether or not it is a real business
If it is judged that it does not correspond to actual business establishment, such as when expanding the business or adding another line of business, the exemption cannot be applied.
In particular, if a corporation is established to expand a personal business, it is not considered a start-up and is therefore excluded from tax reduction. However, if a corporation is established to operate a new business separately from a personal business, the possibility of being excluded from tax reduction is reduced.
On the other hand, there may be an issue as to whether a venture company can be recognized as a start-up if it adds a new business to its existing business. The tax office is likely to determine that a new business that was not in operation at the time of the corporation's establishment is not eligible for tax reduction.
Therefore, if land and buildings are acquired for a tax-reduced business, but both tax-reduced and non-tax-reduced businesses are subsequently operated, resulting in additional collection of acquisition tax, the apportionment is calculated based on the area of use. However, if the area of use is not clear, the apportionment is made using a reasonable method such as sales.
In the case where a person who has been running a private business establishes a corporation, more careful consideration is required regarding whether to apply the startup tax reduction. In addition, since the tax reduction application may be limited depending on various circumstances such as the addition of a new business or expansion of the business, it is important to carefully review the tax reduction requirements and thoroughly prepare related documents.
- See more related columns
You must be logged in to post a comment.