NTS probes foreign homeowners suspected of property tax evasion

The National Tax Service (NTS) has launched an audit into 42 foreign nationals, who each purchased at least two properties in Korea in the past three years, over suspicions that they dodged taxes on capital gains and rental income, the tax agency said Monday.

They are among the 1,036 foreign nationals with multiple homes, owning a combined 2,467 apartment units in Korea. A total of 866 people owned two, while 105 owned three. Sixty-five people owned four or more, the tax agency said.

According to the NTS, a total of 23,219 non-Koreans bought 23,167 apartments worth over 7.67 trillion won ($6.42 billion) in the last three years. More than half were purchased by buyers from China (13,573), followed by those from America (4,282), Canada (1,504), Taiwan (756), Australia (468) and Japan (271).

Nearly half, or over 3.2 trillion won, was used to buy 4,473 apartments in Seoul, whereas over 2.7 trillion won was used to buy 10,093 apartments in Gyeonggi Province. Some 625.4 billion won was spent on buying 2,674 apartments in Incheon.

The NTS said 32.7 percent, or 7,569 apartments, have remained vacant since the owners bought them, a clear indication of real estate speculation.

“Foreign nationals acquiring apartments in Korea for non-residential purposes will trigger an investigation for overseas tax evasion in their home countries,” NTS Assistant Commissioner for Investigation Lim Kwang-hyun said during a press briefing at the NTS office in Sejong.

“They must be subject to the same taxes Koreans pay when buying and retaining homes, not to mention when making gains after selling them. We believe our efforts will help prevent a speculation-oriented apartment price hike.”

Chief among the suspects is an American who owns 42 apartments, collectively worth over 6.7 billion won. The man in question is suspected of deliberately failing to register as a landlord in an apparent attempt to underreport tax on rental income.

The man in his 40s bought the apartments in Seoul and the Chungcheong region via what is referred to as “gap investments,” a popular investment strategy using Korea’s unique jeonse system under which a tenant makes a lump-sum deposit instead of paying monthly rent.

An investor with a home rented to a jeonse tenant can buy another home as long as they can come up with the difference between the market price and the jeonse deposit to be paid by the tenant.

Regarding the American property owner, the NTS said his information will be handed to the U.S. tax authorities for further investigation, given he had no identifiable income or assets in Korea at the time of acquiring the properties, a reason the agency believes tax fraud might have been at play.

The investigation came amid growing calls for heightened scrutiny of foreign property buyers who contribute to the hike of apartment prices despite the government’s series of measures to curb property speculation here.

The price of apartments in Seoul has soared by 314 million won ($262,000), or 52 percent, over the past three years. Korea Appraisal Board data showed the number of properties purchased by foreign buyers for investment purposes stood at 2,090 in June, the highest since 2006 when the state agency began compiling related data.