South Korea: Acquisition of property by foreigners
Introduction1.1 It is possible for foreigners (individuals and corporations) to purchase property in Korea; however, there are detailed rules and regulations which need to be taken into consideration. 1.2 Generally, lawyers are not involved in most real estate transactions in the same way that they would in say the UK, or the USA, where a separate lawyer would represent the seller and the buyer; and the buyer’s lawyer would also likely act for the mortgagee. In Korea, a real estate agent may act for both parties. This may be anathema to some. 1.3 It is highly recommended absent detailed knowledge of the law and the market that a lawyer is engaged in any purchase (or sale) to protect the buyer’s interests and to navigate the rules and regulations and of course the language and culture.
Overview of the Law2.1 The primary legislation governing the acquisition of property by “foreigners” in Korea is as follows:
- Foreigners’ Land Acquisition Act
- Act on the Report of Real Estate Transactions
- Foreign Exchange Transactions Act
- Foreign Investment Promotion Act
Basic Acquisition Structures3.1 The basic possible methods for a foreigner to purchase and hold property in Korea are as follows: 3.1.1 Direct purchase of property in Korea from the home country; or 3.1.2 Incorporation of a “for profit” corporation in Korea and subsequent purchase of land by the same.
Direct Purchase4.1 If property is purchased direct from the home country, then notifications are required pursuant to the Foreign Exchange Transactions Act, the Foreigners’ Land Acquisition Act and the Act on the Report of Real Estate Transactions. 4.2 In Korean property law, land and buildings are discrete and are registered separately. No VAT is chargeable on the acquisition of land. VAT is however payable on the acquisition of commercial buildings thereon.
Purchase by For Profit5.1 It is possible to establish a local corporation for the purpose of the land acquisition. Given the acquisition would undoubtedly exceed KRW100 million, then the investment would qualify as a “foreign direct investment” under the Foreign Investment Promotion Law. 5.2 No VAT is payable on the acquisition of land; it is however payable on the buildings thereon. The VAT would be recoverable by the for profit corporation. 5.3 There are certain reporting requirements under the Foreigners’ Land Acquisition Act and Report of Real Estate Transactions Act.
Other PathwaysThere are some circumstances in which a foreign individual may make a property acquisition and for this to provide a pathway to a visa and ultimately to permanent residence.
|A: Direct Purchase||B: For profit|
|Property Acquisition Tax||4%: unclear for non-resident||4%|
|Annual Property Tax||0.07-0.4% (as above)||0.07-0.4%|
|Corporation Tax||10-25% (depends on amount of profit)||10-25%|
The Property Acquisition Tax and Annual Property Tax depend on the area. In some cases, a surtax is charged. These can be described in more detail when a location is found.
Capital Gains Tax is charged in Korea. A detailed analysis of CGT is beyond the scope of this note. However, in general terms, CGT is treated as income and charged at the relevant Corporation Tax rate.