Can a Foreign Company Buy Real Estate in Korea?

Short Answer

Yes. A foreign company can generally acquire and own real estate in Korea, either directly, through a Korean branch, or through a Korean subsidiary.

A Korean subsidiary is not automatically required simply because the purchaser is a foreign company.

However, the appropriate structure and procedures depend on the type and location of the property, purpose of the acquisition, activities to be conducted after closing, source and route of funds, and applicable Korean real estate, foreign exchange, foreign investment, corporate, and tax rules.

In particular, simply owning Korean real estate should be distinguished from conducting an ongoing business in Korea through the property.

Can a Foreign Company Own Korean Real Estate Directly?

In many cases, yes.

A foreign corporation may acquire and register Korean real estate in its own name without first establishing a Korean subsidiary. Even a foreign corporation without a registered Korean branch may, in appropriate cases, obtain the real estate registration number necessary for ownership registration.

However, the ability to register ownership does not mean that every property can be acquired without additional requirements.

Depending on the property and its location, the transaction may involve real estate reporting, foreign exchange procedures, land-acquisition permission, title registration, and Korean taxes.

Should the Property Be Purchased Directly or Through a Korean Company?

A foreign investor generally has several possible structures:

• direct ownership by the foreign company;
• ownership through a Korean branch; or
• ownership through a Korean subsidiary.

The most appropriate structure depends on what the company intends to do with the property.

For example, direct ownership may be considered where the foreign company primarily intends to hold a particular asset. A Korean subsidiary may be more practical where the investor plans to conduct continuing business operations, employ personnel, enter into multiple Korean contracts, receive substantial business income, or make additional investments in Korea.

A Korean branch is another possibility, but unlike a subsidiary, a branch is not a separate legal entity from the foreign head office.

The ownership structure should therefore be determined before the purchase agreement is signed rather than after the property has already been acquired.

Is Buying Real Estate the Same as Making a Foreign Investment in Korea?

No.

A real estate purchase and a foreign investment under Korea’s Foreign Investment Promotion Act are not necessarily the same transaction.

If a foreign investor establishes or acquires an interest in a Korean company, the investment may be subject to foreign investment notification and registration requirements.

A direct purchase of Korean real estate by the foreign company itself should instead be analyzed separately under the applicable real estate reporting, foreign exchange, registration, and tax rules.

Where a Korean subsidiary is established or capitalized as a foreign-invested company and then purchases the property, foreign investment procedures can become part of the overall transaction structure.

What If the Property Will Be Used for Business?

This is an important distinction.

Merely owning property in Korea is different from actively operating a continuing business through the property.

Additional issues can arise where the foreign company intends to:

• repeatedly lease and manage the property;
• operate a commercial facility;
• employ personnel in Korea;
• conduct lease administration and collect rent locally; or
• engage in real estate development.

Depending on the activities actually conducted in Korea, the foreign company may need to consider a Korean business presence, business registration, tax registration, or sector-specific licenses or registrations.

Real estate development, in particular, can be subject to additional regulatory requirements.

Accordingly, a company should determine not only who will own the property, but also how the property will be operated after acquisition.

How Should the Purchase Funds Be Brought into Korea?

The funding procedure also depends on the ownership structure.

Funds may potentially be introduced as:

• direct purchase funds of the foreign company;
• equity investment into a Korean subsidiary;
• a qualifying shareholder or parent-company loan;
• funds provided to a Korean branch; or
• another financing arrangement.

Each structure can involve different foreign exchange, documentation, bank-processing, corporate, and tax consequences.

The funding route should therefore be confirmed with the relevant Korean foreign exchange bank before substantial funds are remitted.

This is another reason why the purchaser and ownership structure should be settled before closing.

Are Foreign-Owned Korean Companies Treated as Foreign Companies?

Not necessarily for every legal purpose.

A Korean-incorporated company remains a Korean corporation, but it may nevertheless fall within the statutory category of foreign persons or entities for certain Korean real estate rules.

This can depend on factors such as foreign ownership of capital or voting rights and, in some circumstances, the proportion of foreign members or directors.

At the same time, its treatment under Korean foreign exchange or foreign investment rules may be different.

The terms “foreign company,” “foreign-invested company,” and “foreign person or entity” therefore should not be treated as interchangeable.

What Should Be Reviewed Before Signing the Purchase Agreement?

A foreign corporate buyer should conduct due diligence on both the property and the corporate transaction structure.

Important issues can include:

• ownership and the Korean real estate registry;
• mortgages, attachments, trusts, and other encumbrances;
• zoning and permitted use;
• existing tenants, leases, and lease deposits;
• any applicable land-acquisition or land-transaction permission;
• the foreign company’s authority to acquire the property;
• board approvals and the authority of the signatory;
• powers of attorney for Korean representatives;
• foreign exchange and funding arrangements; and
• Korean tax and registration consequences.

Foreign corporate documents used in Korea may also require Korean translations and, depending on the document and jurisdiction, apostille or consular legalization.

What Taxes Should a Foreign Company Consider?

The tax consequences can differ significantly depending on whether the property is owned directly by the foreign company, through a Korean branch, or through a Korean subsidiary.

Depending on the transaction and subsequent use of the property, relevant issues may include acquisition tax, registration-related taxes, property taxes, corporate income tax, VAT on taxable activities, withholding tax, and taxation upon a future sale.

Specific tax rates should be determined based on the actual property, purchaser, location, use, and transaction structure.

For a significant investment, the legal ownership structure and tax structure should therefore be reviewed together before acquisition.

Conclusion

A foreign company can generally acquire and own real estate in Korea, and establishing a Korean subsidiary is not automatically required merely because the purchaser is foreign.

The analysis changes, however, if the property will be used for continuing activities such as leasing, development, or operation of a commercial business. In those circumstances, a Korean branch or subsidiary, business registration, additional regulatory requirements, and Korean tax obligations may need to be considered.

For a substantial transaction, the company should determine the ownership structure, business structure, and funding route before signing the purchase agreement or remitting funds. This can avoid the significantly more complicated process of restructuring the ownership after the property has already been acquired.