Last-Minute Talks on Separate Taxation of Dividend Income: "Leaving Out Top-Performer REITs Undermines Policy Goals" [Real Estate AtoZ]

Seoul Real Estate Forum Holds 22nd Anniversary Founding Seminar
Theme: "Introduction of Project REITs and Measures to Revitalize Listed REIT Investment"
Industry: "Tax Revenue Loss Only 2 Billion Won... Policy Impact Will Be Significant"
Si

As the government and the ruling party continue their final adjustments regarding the separate taxation rate for dividend income, the REITs (Real Estate Investment Trusts) industry-which is legally required to pay high dividends-has once again urged the National Assembly to include REITs in the scope of separate taxation ahead of the legislative review. There are concerns that if REITs are excluded, investors may shift to regular stocks, which could result in outcomes contrary to the government’s policy of encouraging real estate capital to flow into the capital market.

Companies with 40% Dividend Payout Ratio Receive Benefits, but REITs with 90% Are Excluded

Jeong Byungyun, Chairman of the Korea REITs Association, is delivering the keynote speech at the 22nd Anniversary Founding Seminar of the Seoul Real Estate Forum held on the 6th at Eulji Twin Tower, Jung-gu, Seoul. Photo by Choi Seoyoon

According to the REITs industry on November 9, Jeong Byungyun, Chairman of the Korea REITs Association, pointed out in his keynote speech at the 22nd Anniversary Founding Seminar of the Seoul Real Estate Forum, recently held at Eulji Twin Tower in Jung-gu, Seoul, “Among listed companies on the Korea Exchange, 184 companies with a dividend payout ratio of 40% or higher receive tax benefits, but 24 REITs, which are legally required to pay out over 90% of their profits as dividends, are excluded. It is akin to not awarding a scholarship to a top student who is already performing at the highest legal standard.”

Chairman Jeong emphasized, “REITs are a representative means of ‘real estate securitization’ that distributes real estate development profits to the general public, and they are the system that most closely aligns with the new government’s pledge to channel real estate capital into the capital market. While the Lee Jaemyung administration stresses stock market revitalization with the ‘KOSPI 5000’ initiative and the expansion of housing REITs for increased housing supply, excluding REITs from tax benefits undermines policy consistency.”

He further stated, “If REITs are excluded, investors will likely move to regular stocks that offer tax benefits, which could trigger a vicious cycle of contraction in the REITs market. Ultimately, this would block the inflow of real estate capital into the capital market, conflicting with the government’s real estate policy direction.”

Previously, the Ministry of Economy and Finance announced the “2026 Tax Reform Plan” in July, which lowers the highest separate taxation rate on dividend income to 35% for listed companies that have not reduced their cash dividends compared to the previous year and have a dividend payout ratio of 40% or more, or have a payout ratio of at least 25% and increased dividends by more than 5% compared to the three-year average.

However, REITs were not included in the government’s proposal. The industry believes the exclusion is due to the fact that REITs are already required to pay out more than 90% of their profits as dividends, limiting the additional incentive effect, and because a separate taxation system (14%→9%) already exists under the current Restriction of Special Taxation Act.

“Current System Has Zero Effectiveness… REITs Must Be Included in the New System”

Chairman Jeong criticized the current separate taxation system for REIT dividend income, saying, “With strict requirements such as a three-year holding period, a 50 million won investment cap, and the exclusion of those subject to comprehensive financial income taxation, the average benefit per person last year was only 980 won. The system is virtually ineffective, so the argument that double support is being provided is unconvincing.”

He particularly expressed concern that individuals subject to comprehensive taxation-those whose annual financial income exceeds 20 million won-are completely excluded from the current system, making it likely they will move to regular high-dividend stocks to receive tax benefits. If REIT dividends are reported as comprehensive income, individual investors face a tax rate of up to 49.5%.

According to the Korea REITs Association, even if all 24 listed REITs are included in the new separate taxation category, the decrease in tax revenue would be only about 2 billion won. Chairman Jeong stressed, “Considering the overall scale of the tax reform plan, the fiscal burden is not significant. On the contrary, revitalizing REIT investment would expand the indirect real estate investment market and create a more stable foundation for housing supply, yielding greater policy benefits.”

Recently, the REITs market has continued to lag despite the overall upward trend in the stock market. From January to September this year, the KOSPI index rose by 23.59%, but the KRX REITs TOP 10 index increased by only 2.20%. Chairman Jeong said, “Although the stock market has been booming since the new administration took office, the REITs market has been relatively neglected. Including REITs in the scope of separate taxation could be the catalyst that revitalizes the REITs market.”

Final Stage of Parliamentary Review... Inclusion of REITs Is the Key Variable

The Tax Subcommittee of the National Assembly’s Strategy and Finance Committee will hold a meeting on the 13th to begin full-scale deliberations on budget-related bills for tax law amendments. The bill on separate taxation of dividend income is expected to be a central issue in the subcommittee. So far, ten bills related to separate taxation of dividend income have been submitted to the National Assembly. Of these, only two-proposed by Ahn Dogeol of the Democratic Party and Yoon Youngseok of the People Power Party-include REITs, while the remaining eight exclude them.

The government is advocating for a top rate of 35%, while some within the Democratic Party are calling for an even lower rate of 25%, leading to disagreements between the government and the ruling party over the rate. Whether to include REITs will likely be considered during the rate discussions. Chairman Jeong stated, “I deeply agree with the government’s policy direction of ‘strengthening shareholder returns through increased dividends.’ As REITs also align with this policy intent, I hope they will be positively considered during the National Assembly’s review process.”

REITs are indirect real estate investment products with the characteristics of “conduit entities,” which are exempt from corporate tax only if they pay out more than 90% of their profits as dividends. The government introduced the REITs system in 2001, fostering it as a “means of distributing real estate development profits to the general public.”

On the 6th, key attendees of the 22nd Anniversary Founding Seminar of the Seoul Real Estate Forum are taking a commemorative photo at Eulji Twin Tower in Jung-gu, Seoul. Seoul Real Estate Forum

Meanwhile, the seminar titled “Korea REITs, What Is the Solution? Introduction of Project REITs and Measures to Revitalize Listed REITs Investment” was attended by Chairman Jeong, Son Myoungsoo, a member of the National Assembly’s Land, Infrastructure and Transport Committee from the Democratic Party, Kim Seungbeom, Director of the Investment Systems Division at the Ministry of Land, Infrastructure and Transport, Song Jongheon, Chairman of the Seoul Real Estate Forum (and CEO of GRE Partners Asset Management), Kim Seungbae, Chairman of the Korea Association of Real Estate Developers, Jung Wonjoo, Chairman of the Korea Housing Builders Association and Chairman of Daewoo E&C, and Lee Hakgu, Executive Director of the Seoul Real Estate Forum (and General Manager at LG D&O). Other participants included Kang Heeseon, Director at IGIS Asset Management, Kim Byungjik, Executive Director at Shinhan Alpha REITs, Baek Minju, Head of SK REITs, as well as industry officials and experts such as Noh Seunghan, Professor at Konkuk University, Min Sunghoon, Professor at Suwon University, Lee Hyunseok, Professor at Konkuk University, Kim Junghan, Senior Expert at Shin & Kim, and Lee Junhyuk, Attorney at Jipyong LLC. A total of 177 people attended the seminar.

In his opening remarks, Chairman Song Jongheon said, “The government is presenting project REITs as one of the alternatives to the real estate project financing (PF) crisis. Since this is a newly introduced system, there may be a variety of opinions from both the REITs and development industries, and there is a need for active discussion on these issues.” He added, “I hope this seminar will serve as an opportunity to discover new opportunities and directions for the REITs industry.”

In his congratulatory address, Chairman Jung Wonjoo said, “Amid the recent difficulties in the real estate PF market, REITs are emerging as a new breakthrough for the construction industry and the real estate finance market. The introduction of project REITs and the revitalization of listed REITs will be an innovative solution that achieves both stable funding for housing construction projects and investor protection.”