1.

Extension of Period for Conversion into Project REIT

At the time the Project REIT system was introduced, the MOLIT provided, through the REITs Approval Guidelines, that a PFV established prior to November 28, 2025 that satisfied the requirements under the Restriction of Special Taxation Act could be converted into a Project REIT by completing a change registration to include the term “Real Estate Investment Company” in its trade name. The conversion deadline, however, was set on a temporary basis for approximately six months (i.e., until May 29, 2026). Article 17-3 (2) of the REITs Approval Guidelines extends this conversion deadline by an additional six months, to November 29, 2026, and also expands the scope of eligible entities to PFVs established prior to May 28, 2026.

The MOLIT explained the background of the amendment, noting that, because a considerable amount of time is required to explain the advantages of converting a PFV into a Project REIT to participating shareholders with the intention of selling upon the project’s completion and gain their approval, the conversion deadline has been extended to allow time to persuade such shareholders. As a result, the parties that have carried out real estate development projects using existing PFVs are now able to review, strategically and with sufficient time, a restructuring of their business into a Project REIT.

In the case of a PFV, tax benefits (i) are available only where all of the requirements regarding the qualifying businesses, among others, set forth in Article 104-31 of the Restriction of Special Taxation Act are met, and (ii) remain available only within the sunset period prescribed in the same provision (currently December 31, 2028). By contrast, in the case of a Project REIT, once the report of establishment is completed pursuant to Article 26-4 (1) of the Real Estate Investment Company Act, the Project REIT may receive tax benefits, such as the special taxation for in-kind contributors under Article 97-9 of the Restriction of Special Taxation Act and the dividend income deduction under Article 51-2 (1) 4 of the Corporate Income Tax Act without any additional requirements or sunset period limitations. In this respect, we believe that the conversion of a PFV into a Project REIT also offers advantages for investors.
 

2.

Clarification of Equity Contribution Requirements for Largest Shareholder of AMC

Where a domestic corporation intends to become the largest shareholder of an AMC of a REIT or become an entity contributing 10% or more of the AMC’s capital (collectively, the “Largest Shareholder”), it must undergo review by, and obtain approval from, the MOLIT with respect to its financial condition, social credibility, etc. (the “Eligibility Requirements”) (please refer to Table 3 attached to the Enforcement Decree of the Real Estate Investment Company Act and Table 3 attached to the REITs Approval Guidelines).

Among the Eligibility Requirements, in connection with the requirement that “the equity capital at the end of the previous fiscal year will be at least four times the amount intended to be contributed, provided that, where the Largest Shareholder changes after the establishment of the AMC, the equity capital will be at least twice the amount intended to be contributed” (Item (A) of Subparagraph 1 of attached Table 3 of the REITs Approval Guidelines), there had been uncertainty in practice as to what constitutes the “amount intended to be contributed” where the Largest Shareholder of an AMC changes through a share transfer.

Item (A) of Subparagraph 1 of Table 3 attached to the amended REITs Approval Guidelines elaborates on the “amount intended to be contributed” as “the amount corresponding to the aggregate amount of the issue price of the shares that the person or entity intending to become the Largest Shareholder intends to hold.” Accordingly, the amendment clarifies that, even where the Largest Shareholder of an AMC changes through a transfer of shares issued by the AMC, the applicable standard is the issue price of the shares rather than the sale price of the shares.