Korean REIT tax and accounting book: How to Work with Project REITs

Today I'd like to introduce a real estate book that has everything about REITs in it: 『Peurojekteuricheuro ilhaneun beop』 (How to Work with Project REITs).

What kind of book is 『Peurojekteuricheuro ilhaneun beop』?

『Peurojekteuricheuro ilhaneun beop』 is a book about project REITs, a new real estate development platform. Real estate always felt like the playground of people (or companies) with big money(?), hard to get into, so it's nice that REITs now let you share in the profits from property. Times have changed, haha.

The book is co-written by a lawyer, an accountant, a Ministry of Land, Infrastructure and Transport official and others, so I was looking forward to reading it from an expert's point of view.

What is a REIT?

For reference, a REIT (real estate investment trust) is an investment vehicle that pools money from many investors to develop, acquire and operate real estate, and pays the profits out to investors (shareholders) as dividends.

Below, I've picked out the parts of 『Peurojekteuricheuro ilhaneun beop』 that impressed me and that I wanted to keep.

Tax benefits for project REITs by business type

The tax benefits by business type summarized in 『Peurojekteuricheuro ilhaneun beop』 are divided by stage.

• Acquisition stage: acquisition tax reduction and VAT exemption
• Development and operation stage: property tax reduction
• Disposal stage: special rules for corporate tax and VAT

Can a project REIT do remodeling projects too?

The real estate development projects a project REIT can carry out include not only new construction but also remodeling projects that raise the value of existing buildings.

Tax benefits that apply to REITs in general

Here are the tax benefits that apply to REITs in general, in chronological order.

• Establishment stage: exemption from the heavy registration license tax
• Acquisition stage: exemption from heavy acquisition tax (acquiring property within the Gwamireokjegwon Station area, heavy tax on corporate home purchases)
• Development and operation stage: holding tax and corporate tax benefits (separate taxation of property tax, corporate tax income deduction (dividend income deduction))

REIT consolidated accounting and power over the investee

Consolidated accounting is a reporting system that, when multiple legally independent companies form a controlling–subordinate relationship, treats them as a single economic entity and produces financial information for it.

Power over the investee means holding substantive rights to direct the relevant activities that significantly affect the investee's returns. Relevant activities are those that materially affect the investee's returns, such as purchasing and selling goods, managing financial assets, buying and disposing of assets, managing research and development, and deciding the financing structure.

What is an accounting true sale transfer?

An accounting true sale transfer means that, along with the transfer of legal ownership of an asset, all the risks and rewards of the future economic benefits from that asset are substantively transferred to the buyer.

Tax adjustments for accrued interest in lending REITs

When a lending REIT is operated, tax adjustments for accrued interest can arise. Accounting recognizes interest for the period as income on an accrual basis, but tax law recognizes income when the actual interest amount is withheld and deposited, to match the withholding period.

My thoughts after reading 『Peurojekteuricheuro ilhaneun beop』

It's no exaggeration to say that 『Peurojekteuricheuro ilhaneun beop』 contains everything about project REITs as a platform.