[Korean Law Insights] Reporting Real Estate Transactions and Rentals in Korea
- K-Law Consulting_Administration
- Sep 28, 2022
- 3 min read
Updated: Mar 26
[Published on September 20, 2022 edition of the "Korean Law Insights" column in the Korea Daily’s Economic Expert Section]
Following my previous column, I have received many inquiries about the reporting process when conducting real estate transactions in Korea without a licensed real estate agent. I will first address this topic.
Since many individuals continue their professional lives in the U.S. and cannot easily visit Korea, they often consider online real estate transaction reporting. However, there are two key requirements for online reporting: first, an authorized certificate (공인인증서) is necessary, and second, both parties involved in the transaction must jointly sign and seal the real estate transaction report.
If the other party refuses to sign or seal the report, it is possible to submit the transaction report individually by preparing an explanatory statement and other required documents. However, this individual reporting process requires an in-person visit to the relevant local government office, making it more cumbersome.
If both parties agree and complete the real estate transaction using Korea’s Integrated Real Estate Trade Suppor System (irts.molit.go.kr), no separate transaction report is needed.
In summary, there are two scenarios in which a separate real estate transaction report is not required: when the real estate transaction in Korea is conducted through a contract prepared by a licensed real estate agent and when the transaction is completed through the Integrated Real Estate Trade Suppor System.
Now, let’s look at the reporting requirements for leasing properties in Korea. Since June 2021, Korea has implemented the Jeonse and Monthly Rent Reporting System (전·월세 신고제). The key conditions for mandatory reporting are as follows: the property must be located in Seoul, the metropolitan area, or major cities in Korea. Also, the lease must have a security deposit exceeding 60 million KRW or a monthly rent exceeding 300,000 KRW and the lease term must be 30 days or longer. Moreover, the lease agreement must have been signed or renewed on or after June 1, 2021 (renewals that only extend the lease term without changes to financial terms are exempt) and the lease agreement must be reported within 30 days of signing or renewal, either jointly by the landlord and tenant at the local government office or online.
Koreans residing in the U.S. who have already leased out properties in Korea should be aware that if their lease agreements were renewed after June 1, 2021, and involved changes in the security deposit or rent, they may be subject to the reporting requirement. Failure to comply may result in a fine of up to 1 million KRW. Similar to real estate transaction reporting, either the landlord or tenant can report individually, but additional documents are required.
Korea has a "Ban-jeonse" (반전세) system, which is a combination of a security deposit and monthly rent. Additionally, some leases are structured as short-term agreements (less than 30 days) but are repeatedly renewed. This raises questions about whether such cases are subject to the reporting requirement. For Ban-jeonse, some landlords convert the monthly rent into an equivalent security deposit amount for calculations. However, for the Jeonse and Monthly Rent Reporting System, the government assesses the deposit and rent separately rather than converting them. Also, for short-term leases, if multiple lease renewals result in a total stay of 30 days or more, the lease becomes subject to the reporting requirement.
The reporting system itself does not impose a new tax obligation. However, one of its objectives is to allow the government to track rental income for taxation purposes. Under current law, rental income of up to 20 million KRW per year is subject to separate taxation at a 14% rate and rental income exceeding this amount is included in comprehensive income and may be subject to a higher tax rate.
Since many landlords in Korea are still unaware of this system, the Korean government has announced a grace period until the end of May 2023, during which no fines will be imposed for non-compliance. Many Koreans residing in the U.S. have also been unaware of this requirement, so it is important to ensure that rental agreements are reported by May 2023 to avoid fines.
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Jin Hee Lee/K-Law Consulting Korean Attorney
[Reference link in original Korean]
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