Hyundai Motor Group's multi-trillion won land acquisition in southern Seoul has been recognized as part of its business investment, making it eligible for tax benefits, the government said Monday.
According to the Ministry of Strategy and Finance, land that the world's fifth largest automotive conglomerate pledged to buy for 10.55 trillion won ($9.63 billion) in September 2014, can be classified as corporate office building space.
The money used to buy land for commercial purposes and the construction of office towers, convention centers and showrooms by companies is exempt from the newly introduced corporate income recirculation tax.
Hyundai Motor said earlier this year it wants to build a 571-meter-tall, 115-story office building at the site that could become South Korea's tallest skyscraper. Building the office, as well as other facilities, is expected to cost several trillion won.
The conglomerate said it wants to complete all related paperwork by late 2016 so it can start construction.
The exact size of the tax benefits cannot be determined at present, but Hyundai, which is in consultation with Seoul city authorities, may be hoping to get tax benefits on up to 90 percent of the 9.49 trillion won it has to pay for the land this year. This can translate into an upwards of 800 billion won less taxes being paid to the state.
"The government as a rule does not comment on specific companies and examines all cases individually, but the land bought from Korea Electric Power Corp. can be viewed as being a business acquisition that is linked to Hyundai Motor Group," said Choi Young-rok, director-general of the ministry's tax policy bureau.
The recirculation tax that will slap dues on companies for a certain percentage of net earnings that are not invested and withheld is designed to get businesses to spend more on new equipment, business-related transportation assets, and building or refurbishing new office buildings and factories. Such measures can fuel economic growth and help employment.
Sales facilities, warehouses, corporate headquarters and even personnel training facilities are all deemed as being business buildings.
The tax scheme also encourages companies to raise salaries and dividend payments to shareholders that can spur spending.
The official said that any convention centers used by Hyundai can be viewed as part of a business building. In regards to whether or not a hotel will be viewed as part of Hyundai's operations, Choi said if South Korea's second-largest business conglomerate includes hotel operations within its article of association, it can be considered a business investment.
He, however, said Hyundai's initial plans to possibly build and operate a department store and art gallery at the site may require more examination, hinting that such facilities may not be viewed as a business investment exempt from taxation.
The official said under the rules, a companies making investment must use at least 90 percent of the land for itself to get tax benefits. All excess land that exceeds three times the actual space where the office building will be built on will be taxed.
Under the government's plan, Hyundai and other companies that buy land for business must start construction on the year they acquire the land or in the following year. Hyundai agreed to make the final payment around September.
A waiver of up to two years can be given if time is needed to get administrative permission in such areas as the environment, traffic impact and land alteration.
Failure to meet the criteria, or halting construction for more than six months for no apparent reason, can result in taxes being levied latter on. Renting out office space or selling it two years after the building is built can also result in taxes being levied.
Besides real estate acquisitions, the changes to the tax code approved last year, which goes into effect on March 6, call for corporate income recirculation taxes being waived when companies engage in buybacks of their shares on the open market.
"Acquisition of such stocks bought on the stock market or as part of an increase in shares that can be purchased in proportion to existing holdings, will be viewed as a business investment," Choi said.
Besides these areas, the government outlined changes in income taxes, derivatives, inheritance and gift taxes, import duties and dues levied on alcoholic beverages.
Interest rates that are applicable for tax and import duties refunds have been marked down to 2.5 percent, each, with new provisions being made to exclude certain pensions from earned income tax.
The ministry also said that special waivers will be given in regards to taxation on non-business related lands if the property is being used to settle corporate restructuring efforts. (Yonhap)
