SOUTH KOREA Law and Practice Contributed by: Junghwan Lee, Dong Seok Woo, Jun Woo Cho and Jee In Kim, Lee & Ko
2.11 Legal Restrictions on Foreign Investors Foreign investors generally have the same acquisition rights as domestic entities, subject to reporting and permit requirements: • Transaction Reporting: Acquisition must be report - ed to the local authority within 30 days of signing. • Permits: Prior approval is required for properties in protected zones or land transaction permit zones (including certain Seoul areas). This also applies where foreign investors hold ≥50% of the acquiring entity, so ownership structure should be reviewed. • Foreign Exchange/FDI: Non-residents must report through a designated foreign exchange bank. If qualifying as foreign direct investment (eg, KRW100 million minimum and 10% stake), an additional FDI report may be filed. 3. Real Estate Finance 3.1 Financing Acquisitions of Commercial Real Estate Commercial real estate acquisitions in Korea are typi - cally financed with a mix of equity and debt. Debt is mainly structured as mortgage loans secured by the property, often divided into senior, mezzanine and sometimes junior tranches. Unlike some jurisdictions, mezzanine financing is usually secured by a subordi - nated mortgage rather than share pledges. On the equity side, investments are commonly made through real estate funds (REFs) or REITs, with differ - ent classes to reflect risk-return profiles. Large trans - actions may also involve securitisation structures such as ABS or ABCP, or blind-pool funds managed by asset managers. 3.2 Typical Security Created by Commercial Investors Commercial real estate financing in Korea is typically secured by mortgages or security trusts. In a security trust, title is transferred to a trustee and the lender is the priority beneficiary, enabling tighter control and streamlined enforcement through public sale without court foreclosure. Lenders also take security over key receivables such as insurance proceeds and bank accounts.
statute. The process starts with public notice and negotiations for voluntary purchase; if unsuccess - ful, the Land Expropriation Committee determines compensation, and title transfers upon payment or deposit. Owners may challenge the decision through objection procedures or administrative litigation to increase compensation. In practice, adjudication takes about three to four months, while litigation may take six months to over a year at first instance. 2.10 Taxes Applicable to a Transaction Acquisition Tax For asset deals involving commercial real estate, the buyer is generally liable for acquisition tax at a rate of 4.6% (inclusive of local education tax), which includes the former registration tax component. In certain cas - es, including properties located in designated over- concentration control zones, higher rates may apply, which can be approximately 9.4%. Value Added Tax (VAT) The seller is required to charge 10% VAT on the build - ing portion of the purchase price, which is payable by the buyer. However, the buyer may claim a refund if it is registered as a general taxable person. In certain cases, VAT may be exempt if the transaction qualifies as a comprehensive transfer of business. Stamp Tax and Other Costs Stamp tax of up to KRW350,000 applies to the sale agreement and is typically borne by the buyer. Buyers are also required to purchase national housing bonds upon registration, based on a prescribed percentage of the property’s government-assessed value. In prac - tice, such bonds are typically resold immediately at a discount. Other costs, such as brokerage fees, are generally allocated in accordance with market prac - tice. Share Deals In a share deal, deemed acquisition tax of approxi - mately 2.2% (inclusive of surtax) may be imposed if the buyer becomes a majority shareholder (ie, acquires more than 50% of the shares). This tax is calculated based on the proportional value of the underlying real estate assets. In addition, the seller is subject to secu - rities transaction tax at a rate of 0.35% for transfers of unlisted shares.
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