Real estate contract cancellation penalty tax(부동산 위약금에 대한 세금)

If party A, the lessee (tenant), paid a deposit of KRW 10 million to party B, the lessor (landlord), and wishes to cancel the contract, A can cancel the contract by forfeiting the deposit of KRW 10 million already paid. If B wishes to cancel the contract, B must return KRW 20 million, including the deposit of KRW 10 million already received plus an additional KRW 10 million(Here you can refer to detailed information).

 

In this case, if A cancels the contract, A will suffer a loss of KRW 10 million, and B will unintentionally generate an income of KRW 10 million. B must declare and pay 22% of the penalty as other income tax. This other income can be declared and paid again with other incomes when calculating comprehensive income tax in May.

 

If B wants to cancel, A can receive KRW 20 million. Of the KRW 20 million that B must return, KRW 10 million is to be returned to A, and the other KRW 10 million is the penalty. A will also receive an unexpected income of KRW 10 million. However, in this case, B cannot return all KRW 20 million to A.

 

B must return KRW 780 million to A, excluding 22% of KRW 1 million. If B wants to cancel, B can cancel the contract by returning KRW 17.8 million to A. B must declare and pay the remaining KRW 220 million in tax. This declaration can be made by the 10th of the following month after the month of the contract.

 

However, if B returns all KRW 20 million to A and does not report it, a surtax of up to 10% can be imposed, so be careful. A can request a withholding tax receipt from B and deduct it when filing comprehensive income tax return in May of the following year. This applies similarly to real estate sales contracts.

 

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