The 50% line: deemed acquisition tax when you buy a Korean company

When you buy shares in a Korean company, you normally pay no acquisition tax on the shares themselves. There is one important exception that buyers from abroad often miss.

What triggers it

Under Korean local tax law, a shareholder who, together with related parties, holds more than 50% of a company’s shares and actually exercises the rights attached to them is treated as a controlling shareholder (gwajeom juju). On becoming one, the shareholder is treated as having acquired the company’s taxable assets in proportion to the stake.

Which assets count

The assets that would themselves be subject to acquisition tax: mainly real estate, but also vehicles, construction machinery, ships, aircraft, certain memberships and similar rights held by the company.

How much of the stake is taxed

When you first cross 50%, the tax is generally calculated on your whole stake. If you were already above 50% and buy more, it is generally calculated on the increase over your previous highest stake. Shares acquired when the company is first set up do not trigger it.

Timing

The tax is usually filed and paid within a set period after you become a controlling shareholder, generally 60 days. Late filing carries penalties.

What it means for a deal

For a company that owns its factory or land, the amount can be material. Ask the seller’s side early for the list of real estate and other taxable assets and their book values, and have your tax adviser estimate the cost before you agree on price and structure. Buying 50% or less, or buying the business instead of the shares, can change the picture, each with its own trade-offs.

General information only, not tax advice. Rules and rates change; confirm the position for any deal with a qualified Korean tax adviser.