On August 3, 2026, the Ministry of Finance and Economy unveiled the “Tax Reform Plan for 2026” (the “Reform Plan”).
Among the measures included in the Reform Plan, we would like to introduce an item that may have a material impact on real estate transactions and investments, namely, the permanent adoption of the Dividend Paid Deduction for Project Financing Vehicles (“PFVs”) by removing its sunset clause.
Permanent Adoption of the Dividend Paid Deduction for Project Financing Vehicles (“PFVs”) (Removal of Sunset Clause)
Pursuant to Article 104-31 of the Special Tax Treatment Control Law, a qualified PFV that declares 90% or more of its distributable profits as dividends is eligible for a tax benefit under which the declared dividend amount is deductible for the PFV’s corporate income tax purposes from its taxable income for the relevant fiscal year (the so-called “Dividend Paid Deduction”).
However, the foregoing provision has been structured as a sunset clause from when the provision was transferred from Article 51-2 of the Corporate Income Tax Law to Article 104-31 of the Special Tax Treatment Control Law and, as currently set, with repeated three-year extensions of the sunset clause, has allowed the Dividend Paid Deduction only for fiscal years ending on or before December 31, 2028. As a result, each time the expiration date approached, there was uncertainty as to whether the application period of the Dividend Paid Deduction would be extended.
Under the Reform Plan, the application period (sunset clause) of the Dividend Paid Deduction is to be removed, thereby making the Dividend Paid Deduction for PFVs a permanent measure. The Ministry of Finance and Economy cited, as the reason for this amendment, the need to continuously support the mitigation of double taxation (i.e., corporate income tax at the level of PFV and corporate income tax/individual income tax at the level of shareholders of PFV). Other than the deduction being made permanent, the eligibility and requirements for the deduction will remain the same without any change according to the Reform Plan.
There has been a considerable amount of industry interest and concern in the Dividend Paid Deduction for PFVs, as whether it would be extended has repeatedly come into question due to the sunset clause. If the Dividend Paid Deduction is made permanent as announced in the Reform Plan, the uncertainties surrounding whether the sunset would be extended will be resolved. This is expected to significantly enhance predictability and stability not only for the real estate development projects currently being undertaken through PFVs, but also for projects for which a PFV structure is being designed or considered going forward.
The proposed amendments to the tax laws under the Reform Plan are scheduled to go through a legislative notice period from August 4 to August 20, 2026, a Cabinet meeting on September 1, and submission to the regular session of the National Assembly on or before September 3, 2026. The subsequent legislative developments will need to be monitored.
