On June 2, 2020, certain proposed amendments to the Enforcement Decree of the Local Tax Act (the “Local Tax Act”) were promulgated into the law (the “Amendments”) changing the scope of certain tax benefits granted to real estate funds (“REF”) and real estate investment trust companies (“REIT”).  The Amendments took immediate effect as of June 2, 2020 with certain transitional measures. 

Before the Amendments, REF and REIT enjoyed a flat property tax on land of 0.24% (compared to an incremental tax rate of up to 0.48% for regular companies) and an exemption of aggregate real estate tax (in contrast to an incremental tax rate of up to 0.84% for regular companies). 

After the Amendments, such flat property tax rate on land and aggregate real estate tax exemption for PRIVATE REF/REIT will no longer apply in principle (while certain transitional rates and exceptions exist as explained below).  Instead, generally speaking the following tax rates will apply to PRIVATE REF/REIT after the Amendments. 

Please note, however, that the following categories of REF and REIT will continue to enjoy the reduced property tax rate on land and the aggregate real estate tax exemption: 

• Public REF and REIT;
• Private REIT whose investors are comprised only of (i) REIT listed on stock exchange, (ii) REF which is not a private REF, or (iii) a trust company that manages a specified money trust (“특정금전신탁” in Korean) entrusted by 50 or more trustors; and
• Private REF (i) whose investors are comprised only of REIT listed on stock exchange, REF which is not a private REF, or a trust company that manages a specified money trust (“특정금전신탁” in Korean) entrusted by 50 or more trustors, AND (ii) which invests in excess of 80% of the fund assets into real estate.  

Lastly, as a transitional matter, under the Amendments, it is understood that for land acquired by private REF/REIT on or before June 1, 2020, to the extent that there is no change in the ownership of the land, the flat tax rate of the property tax and the exemption of the aggregate real estate tax on the land will apply for certain time period in proportion to the annual rates provided in the table below:  

Since the application of the foregoing summary on the Amendments as well as transitional measures may vary depending on the acquisition timing of each individual asset, the acquiring entity, as well as the specific asset type, more detailed analysis on the application of the new tax regime under the Amendments on specific assets or investment opportunities will be needed.