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Lim Kwang-hyun, director of the National Tax Service’s investigation bureau, gives a briefing on tax evasion by foreign property owners at the Government Complex in Sejong on Aug. 3. (provided by the National Tax Service)

Amid the recent real estate market frenzy in the Seoul Capital Area (SCA), the number of foreign nationals purchasing apartments has risen sharply. The National Tax Service (NTS) announced on Aug. 3 that it was initiating tax audits to investigate possible tax evasion by 42 foreign nationals with histories of speculative purchasing, including multiple homeowners.

In an analysis of year-to-year acquisition of South Korean apartments by foreign nationals based on Supreme Court registration figures, the NTS found that foreign nationals had purchased a total of 23,167 apartments valued at 7.63 trillion won (US$6.39 billion) in all between 2017 and May 2020.

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The number of purchases was found to have increased from year to year, with 5,308 in 2017, 6,974 in 2018, and 7,731 in 2019. The acquisition value also increased annually from 1.79 trillion won (US$1.5 billion) in 2017 to 2.23 trillion won (US$1.9 billion) in 2018 and 2.4 trillion won (US$2.01 billion) in 2019. For the year 2020, foreign nationals had acquired 3,514 apartments (1.25 trillion won, or US$1.05 billion) as of May, representing a 27% increase in the number of purchases and a 49% increase in value from the same period in 2019 (2,768 apartments, 840.7 billion won, or US$703.8 million).

By nationality, Chinese nationals led the way with 13,573 apartments acquired (3.17 trillion won, or US$2.65 billion), followed by citizens of the US (4,282 apartments, 2.19 trillion won, or US$1.83 billion) and Canada (1,504 apartments, 798.7 billion won, or US$668.7 million). A total of 1,036 foreign nationals were classified as multiple homeowners with two or more apartments. This included 866 people with two residences, 105 with three, and 65 with four or more -- accounting for 2,467 apartments in all. One individual was found to own 42 apartments, with an acquisition value of 6.7 billion won (US$5.6 million).

. No. of foreign property owners by nationality

Of the 23,167 apartments purchased by foreign nationals over the three-year, five-month period, 7,569 (32.7%) had never been occupied by their respective owners. The NTS launched tax audits against 42 foreign nationals with multiple residences or histories of non-occupancy on suspicions of evading housing and rental income taxes. For example, an audit was initiated against a US national in their 40s identified by the initial “A,” who had acquiring 42 small apartments in the SCA and in the Chungcheong Provinces (6.7 billion won, or US$5.6 million) since 2018 through “gap investing” and is suspected of underreporting rental income. The NTS began its investigation of A due to the lack of financial transparency, with little domestic income or property recorded.

“B” is a Chinese national in their 40s who entered South Korea to study Korean and currently lives in the SCA, having found employment after the completion of their studies. B was found to have purchased eight apartments in various locations throughout South Korea, including Seoul, Gyeonggi Province, Incheon, and Busan. With seven of them currently rented out through key money and monthly rental arrangements, B is suspected of having failed to report rental income.

“C,” a foreign national who works as an executive at the South Korean branch of an overseas corporation, is suspected of having failed to report rental income for four luxury apartments they purchased in locations including the banks of the Han River and Seoul’s Gangnam neighborhood. The units in question are currently being leased for monthly rents in excess of 10 million won (US$8,376) apiece.

“Foreign nationals must comply with the same tax laws as South Koreans when acquiring, owning, and transferring apartments in South Korea,” stressed Lim Kwang-hyun, director of the NTS investigation bureau.

“We plan to conduct a thorough examination of the individuals being audited, including the possibility of rental and transfer income tax evasion, and the sources of acquired funds,” Im said.

By Lee Kyung-mi, staff reporter

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