For the time being, it is expected that managing residential office buildings will not be easy. Many people underestimate the complexity of residential office interiors, and it often turns out to be more challenging than expected. Many individuals rely only on information from certain brokers or what they find online, mistakenly believing that residential officetels are not considered housing. If they can prove that their officetel is being used for general business rather than residential purposes, there may be a way to exclude it from the housing count. Given that the extracted tax amount is now approaching 100 million won, the process of resolving these issues has not been easy at all. 

Hello, this is Kim Yong-beom. In my previous video, I provided a comprehensive overview of whether residential officetels should be included in the housing count and discussed tax strategies related to acquisition tax and comprehensive real estate tax. In this video, I will discuss capital gains tax when holding residential officetels.

I will now define the non-taxable tax-saving strategy from a side perspective. Many people tend to underestimate residential office interiors, but there are surprisingly many cases where issues arise later. Many individuals rely solely on information from some brokers or what is available on the internet, mistakenly believing that residential officetels are not considered housing. As a result, they often sell their apartments or houses to apply for non-taxable status when reporting. Initially, there may be no issues at the time of reporting, but in a few months or even four to five years later, they may face tax liabilities ranging from several million to even several hundred million won. This shows that the scale of capital gains tax is fundamentally different from acquisition tax and comprehensive real estate tax. Therefore, it is even more important to pay attention to this video than the last one. Please stay focused until the end. Originally, the concept of housing is...

The regulations regarding buildings that are essentially used for residential purposes were quite broad and abstract. However, with the recent amendments to the tax law this year, various issues have arisen. The revised tax law for 2024 has precisely and intricately changed the definition of a residence, categorizing it based on family units, and requiring that each space have separate entrances, bathrooms, and cooking facilities. Considering that residential officetels typically possess such structures, it has become increasingly difficult for residential officetels to be excluded from the housing count under the new tax law amendments. 

Furthermore, unlike the acquisition tax and the comprehensive real estate tax, the income tax law adopts the principle of actual taxation. Therefore, regardless of whether the registered use is for business, as long as it is practically used as a residence, it will be considered a residence. Consequently, establishing countermeasures is crucial. So, how should we develop strategies in response to this? First, holding onto...

You can consider registering as a housing rental business in the officetel where you reside and applying for the housing tax exemption special case. Even if you have rented the office space for residential use, when selling a house that you have lived in for more than two years, if the officetel you are using qualifies as a long-term rental property under the Income Tax Act, that officetel will be excluded from the housing count, allowing you to benefit from the housing tax exemption special case. If you only own the officetel in addition to your residence, registering the officetel as a rental business would allow you to apply the housing tax exemption to the residence you live in. The issue lies with the mandatory rental period for housing rental businesses; the current legal framework still has a 10-year requirement. The Yoon Seok-yeol administration is also pushing for a 6-year short-term rental business system, but this requires legal amendments. Cooperation from the opposition party is urgently needed, considering the current situation.

Considering the situation, it is expected that obtaining a license will not be easy for the time being. We can think about a plan to designate residential officetels as non-residential. Since residential officetels are counted as housing when they are used for permanent residence, if it can be proven that the officetels being held are used for general business purposes rather than residential purposes, it will create a way to exclude them from the housing count. 

For example, if I own two residential officetels and one general apartment, and both residential officetels are recognized for business use, they will be excluded from the housing count. Therefore, when selling the general apartment, it will be considered as having only one house for tax exemption purposes. This is how the design is structured. Now, what does it mean to have used them for business purposes? This can be understood in two ways: either the owner uses them directly for personal use, or they are used for residential purposes.

This pertains to cases where a property is leased for business purposes. In reality, it is not easy for the owner to use the property directly. Now, regarding the latter point, in order to be recognized as leasing for business purposes, you must remember three essential requirements. First, you need to register as a business for the lease of non-residential real estate under the Value-Added Tax (VAT) Act. You must also consistently report and pay the VAT on the monthly rent. Residential real estate leasing services are generally exempt from VAT, while non-residential leasing is subject to taxation. Typically, the taxable status of VAT is recognized when there is a continuous nature of the business. Therefore, when calculating the number of residential properties, the officetel in question can be considered as non-residential business property and thus excluded. So, please remember to register as a business and ensure that you report and pay the applicable taxes.

The first point is that the tenant should absolutely not register their residence. The tax office often determines the purpose of an officetel as residential by checking whether the tenant has registered their residence. If the tenant registers their residence, it is highly likely that the officetel will be considered as a residential space. Therefore, the tenant must not register their residence at all.

The third point is that when accepting a tenant, it is preferable to have a tenant who is registered as a business owner and is conducting business. This way, it can be officially recognized that the tenant is running a business in that officetel. The tenant will also be responsible for filing and paying value-added tax, as well as reporting business income for income tax, so all these aspects will be documented. However, the problem is that it is difficult to find tenants who are using the space for business purposes. In reality, it is not uncommon for such situations to arise during the leasing process.

Even if it's a shame, you need to leave it vacant. If you let residential tenants in between and they register their residence, it can cause problems later on. Trying to collect monthly rent could end up costing you several hundred million in taxes. So, I think we need to be cautious about this. I've mentioned three aspects of how to convert residential officetels into non-residential ones. Although I've briefly explained this in the video, from the tax authority's perspective, there is a strong tendency to consider residential officetels as housing. In fact, there are many things to review, and there are definitely risky parts involved. I've seen numerous cases where people prepare for non-residential status without being thorough, thinking that tenants won’t register their residence, only to face significant setbacks later on. Therefore, residential...

When converting an officetel to a non-residential use, you must consult a professional tax advisor before making that decision. As I mentioned earlier, regarding the commercialization of residential officetels, I have experience in this area. To briefly summarize, a person who owned a residential officetel sold another apartment that they owned, apart from the officetel. In the case of this residential officetel, it was stated by the real estate agent that it does not count towards the number of housing units. They believed this statement completely and, when filing taxes for the apartment, assumed it would be entirely tax-exempt, which led them to not report the capital gains tax at all. After about three years, they received a tax clarification notice due to this issue. At that time, our approach focused on the commercialization of the residential officetel.

It was a task. I spoke with the client and checked the actual usage. First of all, there were no reports of residence registration during the rental period. I mentioned earlier that there are three key points, and the second requirement was met. However, the actual purpose of use was indeed residential, not for personal purposes, which was the issue. Fortunately, the client did not rent it directly to the tenant; instead, they rented it to a corporation, which used it as a dormitory for their employees. Even if the actual user was using it for residential purposes, if a corporation used it as a dormitory for employees, it can be considered business real estate under the VAT law, not as a residential property. We focused on this aspect and attempted to prove its business nature, and ultimately, the tax office confirmed the business nature.

The exemption from capital gains tax on the transfer of a residential property could now be fully realized. Even if the property was used as a dormitory, the client did not register as a business when renting out the non-residential property, nor did they ever report it for tax purposes. This became a significant issue when proceeding with the tax office, as they raised concerns about this matter. The assessed tax amount was nearing 100 million won, and due to the substantial tax amount, the tax office was reluctant to back down easily. Thus, resolving this issue was not an easy process. Ultimately, we were able to defend the case well. However, if there is no proper business registration or tax reporting for general real estate rental, demonstrating the business nature of a residential office can generally be quite challenging. Additionally, the tax authorities have weak links regarding this matter.

There are many aspects that need to be checked thoroughly. Therefore, it is essential to understand that business registration and value-added tax are very important. Today, I provided an overall explanation of tax-saving strategies for residential officetels. I discussed how the tax law views residential officetels and what tax-saving strategies can be used to maintain the benefits of tax exemption. I hope this video will be helpful. 

In the pinned comment for more details, we have included the actual case I mentioned today, along with the applicable legal principles and more specific information, so please refer to that. For those who own a residential officetel, it is crucial to plan a proactive tax exemption strategy for your valuable property before selling your apartment to avoid wasting money on taxes.

It is important. As I always say, taxes can vary significantly depending on which tax accountant you choose. Please remember this, and I will come back with more helpful information in the next video. Don't forget to like and subscribe.

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