"REITs With 90% Mandatory Dividend Excluded From Separate Taxation Is Discriminatory," Korea REITs Association Submits Petition

"If REITs Collapse, Rental Housing Supply Will Shrink
Concerns Over Encouraging Direct Real Estate Investment"

On November 13, the Korea REITs Association submitted a petition to Lim Ija, Chair of the National Assembly’s Strategy and Finance Committee, requesting that REITs (Real Estate Investment Trusts) be included as eligible for separate taxation on high-dividend income. The association argued that excluding REITs-which are required by law to distribute at least 90% of their earnings as dividends-from the government’s plan to expand separate taxation on dividend income contradicts the policy’s original intent. The REITs industry has strongly objected, warning that if the amendment passes as is, individual investors will withdraw their funds, destabilizing the entire REITs market.

The association stated, “As the National Assembly is expected to discuss separate taxation benefits for high-dividend stocks, the REITs industry is making every effort to ensure that REITs are included in the scope of separate taxation.”

The Current Separate Taxation System Is Practically Ineffective... Less Than 1,000 KRW Benefit Per Investor

As of 2023, the tax exemption amount under separate taxation was recorded at 400 million KRW per year, with the average benefit per individual investor among all REITs investors amounting to only 981 KRW. Korea REITs Association

According to the association, the government’s existing policy of separate taxation for REITs investments up to 50 million KRW (with a three-year holding requirement) is almost never utilized in practice.

This is because investors must apply separately at the time of purchase, and those with financial income exceeding 20 million KRW are excluded from eligibility altogether.

In 2023, the total amount of separate taxation benefits received by all REITs investors was only 400 million KRW. This amounts to less than 1,000 KRW per investor.

Nevertheless, the Ministry of Economy and Finance maintains that “REITs already receive separate taxation benefits up to the 50 million KRW limit, so additional special treatment is unnecessary.” The industry counters that “it is unreasonable to block further tax benefits based on a system that is virtually nonfunctional.”

If REITs Are Excluded, Payout Ratio Will Plummet from 90% to 35%

The proposed amendment would lower the maximum separate tax rate to 35% for listed companies with a dividend payout ratio exceeding 40%. However, REITs are excluded from this measure. The association points out that if REITs are left out, funds will shift to general high-dividend stocks (with a payout ratio of at least 35%), paradoxically leading to a decrease in the overall market payout ratio.

The association presented an analysis showing that if the dividend payout for individual investors in 24 listed REITs (192.2 billion KRW) drops from the 90% payout standard to the 35% standard, the total would shrink to 74.7 billion KRW. This directly contradicts the government’s stated goal of “expanding everyday dividend income.”

The association also argued that excluding REITs from separate taxation could not only shrink the REITs market but also reduce the supply of rental housing. REITs have been a key policy tool for providing long-term rental housing with private capital, without government funding. Of the 1.4 million private rental units, about 200,000 have been supplied through REITs.

Industry insiders also warn that if the REITs market is destabilized, the new business model of project REITs-which is set to launch on the 28th of this month as a replacement for Project Financing Vehicles (PFVs)-will struggle to take root. A withdrawal of REITs capital would simultaneously undermine both private and public rental housing structures, reducing housing options for young people and those without homes.

"Dividend Income Channel for Seniors Will Be Blocked"

REITs Structure. Korea REITs Association

REITs, with an average dividend yield of 7.5%, are a stable income product and an important source of income for retirees. The association pointed out, “It is unfair to grant benefits based on the payout ratio of listed companies while excluding REITs, which are legally required to pay high dividends.”

They also cited the fact that since the new administration took office, the KOSPI has risen by 23.6%, but the top 10 REITs stocks have only increased by 2.2%. “After tax disadvantages became a reality, high-net-worth investors have stopped investing, and existing investors are preparing to exit,” the association said.

The association emphasized, “If the purpose of separate taxation on dividend income is to support high dividends, then REITs-which are required to pay high dividends-should be prioritized for protection. Forcing REITs, a key asset-building tool for the public, out of the market is inconsistent with both the policy’s intent and fairness.”