Investment Strategies of 'Gatmulju' Stars... Is Tax Halved When Selling Buildings Bought with Loans?

①'Godmulju' Stars, The World They Live In
Repeated Family Corporate Real Estate Purchases, Why
Ryu Jun-yeol, Lee Byung-hun, Han Hyo-joo, etc.
Legal Investment vs Ghost Company Speculation

'It feels like a story from the world they live in.' This is a common comment on articles about celebrities purchasing real estate. 'Owning a home' is a modest dream for ordinary people, but as loan limits decrease and interest rates soar, buying a house has become a 'burden.' Nevertheless, news of celebrities purchasing real estate worth tens or hundreds of billions of won is frequently heard. Most of these purchases are made under the name of a 'corporation.' They borrow tens of billions of won from banks to buy real estate worth hundreds of billions, then sell it to repay the loans and gain capital gains.

Why the consecutive sales of buildings under corporate names?

Actor Ryu Jun-yeol purchased land in Yeoksam-dong, Gangnam-gu, under a corporation where his mother is the CEO in 2020, built a building, and sold it in early 2022. According to the real estate registry, the 83-pyeong (approx. 274.4 sqm) land Ryu bought was priced at 5.8 billion won. He borrowed about 5.2 billion won from the bank, which is 90% of the purchase price. He constructed a building with two basement floors and seven above-ground floors, and during this process, he took an additional loan of about 1.7 billion won, which was 70% of the construction cost. Two years later, he sold the building for 15 billion won, earning a capital gain of 6 billion won. After taxes, the estimated profit was about 4 billion won.

Actress Han Hyo-joo purchased a two-story building on approximately 118 pyeong (approx. 389.3 sqm) of land in Eunpyeong-gu, Seoul, under a family corporation where her father is the CEO in 2018 for 2.7 billion won. She borrowed 1.5 billion won from the bank. She sold it three years later in 2021, reportedly earning a capital gain of about 2.5 billion won.

(From left) Actors Lee Byung-hun, Ryu Jun-yeol, Han Hyo-joo
[Photo by Yonhap News]

Actor Lee Byung-hun purchased a 10-story building in Yangpyeong-dong, Seoul, in 2018 for 26 billion won through a personal and corporate project company and sold it in 2021 for 36.8 billion won. The estimated capital gain is in the 10 billion won range. Project B, a real estate rental company, was established in September 2017, and Lee Byung-hun held 100% of its shares.

Actress Kim Tae-hee purchased a building in Yeoksam-dong, Gangnam-gu, Seoul, under her personal name in 2014 for 13.2 billion won and sold it in 2021 for 20.3 billion won, making a capital gain of 7.1 billion won. In December 2018, she transferred ownership to a real estate rental corporation she established to manage the profits.

Broadcaster Jang Sung-kyu purchased a building in Cheongdam-dong, Gangnam-gu, Seoul, in 2021 for 6.5 billion won under a corporation he founded. The building has two basement floors and four above-ground floors, with a land area of 72 pyeong (approx. 231.4 sqm) and a total floor area of 250 pyeong (approx. 825.6 sqm). It is estimated that he borrowed about 5.5 billion won. The purchasing corporation, Art Is Mine, is a broadcasting content production company established by Jang in 2020, and his wife serves as an executive director.

High-income celebrities: investment or tax evasion?

It is common to see celebrities purchasing buildings through corporations and earning rental income or capital gains. Their interest in real estate, especially commercial building investments, stems from their preference for stable investments due to the lack of fixed income.

The image and the main text are not directly related. [Image source: Pixabay]

Typically, celebrities who earn large sums from appearance fees face high tax rates and inevitably pay substantial taxes. However, tax burdens differ when purchasing buildings as individuals versus corporations. After acquiring a building, if rental income is generated, individuals must pay income tax ranging from 6.6% to 49.5% (including local income tax) depending on their income bracket. In contrast, corporations face tax rates of only 9.9% to 23.1% based on taxable income, making it more advantageous tax-wise to purchase buildings through corporations.

Additionally, corporations find it easier to obtain loans when buying new buildings compared to individuals. Although loan limits vary depending on corporate income, typically loans up to 70-80% of the real estate price are possible. There is also a difference in capital gains tax when reselling buildings. Individuals paying capital gains tax on amounts exceeding 1 billion won face a rate of 49.5% (including local income tax), meaning about half of the gain goes to taxes, whereas corporations pay only 20.9%.

Given these circumstances, some celebrities establish shell corporations for tax evasion purposes. The 2020 MBC program 'PD Notebook' reported that most celebrities effectively set up ghost companies for real estate purchases. Many corporate representatives of the companies that bought buildings are family members, and some corporations are not actively operating. This practice, known as setting up 'paper companies,' is criticized as 'tax evasion' aimed at gaining tax benefits.

However, some argue that unconditional criticism of celebrities purchasing buildings through corporations is unfair. Establishing corporations to benefit from favorable tax rates is a well-known investment method. It is considered unreasonable to target them for regulation solely because they earned significant capital gains through legal procedures. Also, the risk of fraud increases when celebrities buy buildings as individuals, making corporate purchases a practical choice.