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South Korea's capital gains tax system significantly impacts property sellers, with rates varying dramatically based on property type, holding period, and residency status.
Understanding these tax rules is crucial for maximizing your returns when selling residential properties, commercial buildings, or land in South Korea's dynamic real estate market.
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South Korea imposes progressive capital gains tax rates from 6% to 45% on property sales, with significant variations based on property type and holding period.
Non-residents face either 11% withholding tax on sale proceeds or 22% on net gains, whichever is lower, while residents benefit from long-term holding deductions up to 30%.
| Property Type | Holding Period | Tax Rate (Residents) | Non-Resident Rate | Key Deductions |
|---|---|---|---|---|
| Residential | Under 1 year | Up to 77% (speculation areas) | 11% or 22% of gain | KRW 2.5M per year owned |
| Residential | 3-5 years | 6-42% + 10% local tax | 11% or 22% of gain | 10% long-term deduction |
| Residential | 5-10 years | 6-42% + 10% local tax | 11% or 22% of gain | 20% long-term deduction |
| Residential | Over 10 years | 6-42% + 10% local tax | 11% or 22% of gain | 30% long-term deduction |
| Commercial/Land | Any period | 6-45% + 10% local tax | 11% or 22% of gain | Standard deduction + expenses |
| Primary Residence | 2+ years ownership | Generally exempt | May qualify for exemption | Full exemption if qualified |
What type of property determines your capital gains tax rate in South Korea?
South Korea applies different capital gains tax rates depending on whether you're selling residential property, commercial property, or land.
Residential properties face progressive tax rates from 6% to 42% plus a 10% local surtax for residents. Commercial properties and land are taxed at higher rates, reaching up to 45% plus the 10% local surtax.
Properties in designated speculation zones face additional surcharges, particularly for short-term holdings under one year. These surcharges can push the effective tax rate up to 77% in extreme cases for residential properties held less than 12 months.
The Korean tax office classifies each property type distinctly, so mixed-use buildings may be subject to different rates for their residential versus commercial portions.
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How does your property ownership duration affect capital gains tax?
The length of time you've owned property in South Korea dramatically impacts your tax liability through long-term holding deductions.
Properties held for at least 3 years qualify for a 10% deduction on taxable gains. This deduction increases progressively: 5-10 years of ownership earns a 20% deduction, while properties held over 10 years receive the maximum 30% deduction.
Short-term holdings under one year face severe penalties, especially in speculation control areas where tax rates can reach 77%. Properties held 1-2 years receive no long-term deductions but avoid the harshest speculation surcharges.
Every seller also receives a standard deduction of KRW 2.5 million multiplied by the number of years of ownership, which applies regardless of holding period.
The Korean government uses these incentives to discourage property speculation while rewarding long-term investors who contribute to housing market stability.
What capital gains tax rates apply based on your residency status?
Your residency status in South Korea at the time of sale determines both your tax rate structure and filing obligations.
Korean residents pay progressive capital gains tax rates on their worldwide property gains, ranging from 6% to 45% depending on property type and value, plus a 10% local surtax.
Non-residents face a simplified withholding tax system: they pay the lower of 11% on total sale proceeds or 22% on the net capital gain. This withholding tax is typically collected at the time of sale by the buyer or their agent.
Foreign corporations selling South Korean property face the same withholding rates but must navigate additional compliance requirements. Individual non-residents can sometimes claim treaty benefits if their home country has a tax treaty with South Korea.
Residents have broader deduction opportunities but also face more complex filing requirements with the Korean tax office within two months of the sale.
How do you calculate taxable capital gains from sale and purchase prices?
South Korean capital gains tax applies to the difference between your property's sale price and its adjusted acquisition cost.
| Component | Included in Calculation | Required Documentation |
|---|---|---|
| Sale Price | Final transfer amount received | Sales contract, settlement statement |
| Original Purchase Price | Initial acquisition cost | Purchase contract, payment records |
| Acquisition Costs | Registration fees, acquisition tax, legal fees | Receipts, invoices, tax payment records |
| Improvement Costs | Capital improvements that increased value | Contractor invoices, permits, receipts |
| Sale Expenses | Brokerage fees, legal costs, marketing | Commission agreements, service invoices |
| Standard Deduction | KRW 2.5 million Ă— years owned | Ownership registration records |
What property-related expenses can you deduct from capital gains?
South Korea allows comprehensive deductions for legitimate expenses related to acquiring, improving, and selling your property.
Acquisition-related deductions include brokerage commissions paid when buying, registration taxes, acquisition taxes, legal fees for title transfer, and notary fees. You must retain original receipts for all claimed expenses.
Capital improvements that permanently increased the property's value are fully deductible. This includes major renovations, structural improvements, new fixtures, and landscaping, but excludes routine maintenance and repairs.
Sale-related expenses encompass real estate agent commissions, legal fees for the transaction, advertising costs if you marketed the property yourself, and transfer taxes paid during the sale process.
Documentation requirements are strict: the Korean tax office requires original receipts, contracts, and invoices for every claimed deduction, with clear evidence linking expenses to the specific property sale.
What are the current capital gains tax rate structures for different property types?
South Korea's capital gains tax structure varies significantly based on property classification and value thresholds as of September 2025.
Residential properties face progressive rates starting at 6% for gains under KRW 12 million, rising to 16.5% for gains between KRW 12-46 million, 24.2% for KRW 46-88 million, 35.2% for KRW 88-150 million, and 41.8% for gains exceeding KRW 150 million. All rates include the 10% local surtax.
Commercial properties and land follow a steeper progression: 6.6% for gains under KRW 12 million, escalating to 49.5% for the highest bracket over KRW 150 million, including local taxes.
Properties in speculation control zones face additional surcharges that can add 10-20 percentage points to these base rates, particularly affecting short-term holdings.
Non-residents bypass this complexity with their flat withholding rates of either 11% on sale proceeds or 22% on net gains, whichever results in lower tax liability.
What exemptions and reductions are available for capital gains tax?
South Korea offers several significant exemptions and reductions that can substantially lower or eliminate your capital gains tax liability.
The primary residence exemption completely eliminates capital gains tax if you owned and lived in the property as your main home for at least two years before the sale. This exemption applies once every two years and has no monetary limit.
Long-term holding reductions provide automatic deductions: 10% after 3 years, 20% after 5 years, and 30% after 10 years of ownership. These percentages apply to your total taxable gain before calculating the final tax.
Agricultural land used for farming purposes may qualify for special exemptions if specific use and ownership conditions are met. Forced sales due to bankruptcy, legal proceedings, or government acquisition often receive favorable treatment.
Senior citizens over 65 selling their long-term primary residence may qualify for additional reductions beyond the standard exemptions, particularly if the sale proceeds will fund retirement housing.
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How is acquisition value calculated for inherited or gifted property?
Properties acquired through inheritance or gifts in South Korea use specific valuation methods that differ from standard purchase transactions.
For inherited property, the acquisition value is typically the officially assessed value at the time of inheritance, not the original owner's purchase price. This assessed value comes from the Korean National Tax Service's property valuation system.
Gifted properties use the fair market value at the time of the gift transfer as the acquisition cost. If gift tax was paid, the declared value for gift tax purposes usually becomes the acquisition value for future capital gains calculations.
Inheritance taxes already paid can sometimes be added to the acquisition cost, reducing future capital gains liability. Similarly, gift taxes paid may increase the recipient's basis in the property.
Documentation requirements include the inheritance tax return, gift tax return, official property assessments from the transfer date, and any supporting valuations used during the inheritance or gift process. These records are crucial for defending your acquisition cost calculation with the Korean tax office.
When must you file and pay capital gains tax after selling property?
South Korea imposes strict deadlines for capital gains tax filing and payment that begin immediately after your property sale closes.
You must file your capital gains tax return and make full payment within exactly two months of the property transfer completion date. This deadline applies regardless of whether you're a resident or non-resident seller.
The filing process requires submitting forms to your local district tax office or using the Korean tax office's electronic filing system. Late filing incurs penalties of 0.03% per day on the unpaid tax amount, plus additional surcharges.
Non-residents whose tax was withheld at closing may still need to file returns if they want to claim deductions or refunds. The two-month deadline remains firm even if withholding occurred.
Payment methods include bank transfers, in-person payments at tax offices, and online payments through the National Tax Service website. Some taxpayers may qualify for installment payment plans if they face financial hardship, but approval requirements are strict.
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What documents do you need to submit for capital gains tax filing?
The Korean tax office requires comprehensive documentation to support your capital gains tax return and all claimed deductions.
- Property sale documentation: Original sales contract, settlement statement showing final transfer amount, proof of payment receipt, and any amendments to the sales agreement
- Acquisition records: Original purchase contract, payment receipts, registration certificates showing ownership transfer dates, and mortgage documents if applicable
- Expense documentation: Original receipts for all claimed deductions including brokerage commissions, legal fees, renovation costs, and acquisition taxes paid
- Identity and residency proof: Valid passport or Korean ID, residency certificates, and tax residency documentation for non-residents claiming treaty benefits
- Property records: Land registry documents, building permits for any improvements, official property assessments, and zoning classifications
How are foreign sellers treated under South Korean capital gains tax rules?
Foreign sellers face simplified but often higher effective tax rates through South Korea's withholding tax system for non-residents.
Non-resident individuals and foreign companies pay capital gains tax through withholding at the time of sale. The buyer or their representative agent must withhold the lower of 11% of the total sale proceeds or 22% of the calculated net capital gain.
This withholding occurs automatically during the property transfer process, meaning you receive your sale proceeds minus the withheld tax amount. The withheld funds are remitted directly to the Korean tax authorities on your behalf.
Foreign sellers can file for refunds if the withheld amount exceeds their actual tax liability after applying eligible deductions and exemptions. However, this requires filing a return within the two-month deadline and providing supporting documentation.
Tax treaty benefits may reduce withholding rates for residents of countries with favorable treaties with South Korea. Citizens of countries like the United States, United Kingdom, and Germany may qualify for reduced rates, but must provide treaty claim documentation at the time of sale.
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What legal strategies can minimize your capital gains tax liability?
Several legitimate tax planning strategies can significantly reduce your capital gains tax burden when selling property in South Korea.
Timing your sale strategically to maximize long-term holding benefits provides the most substantial savings. Holding property for at least 3, 5, or 10 years unlocks progressively larger deductions of 10%, 20%, and 30% respectively on your taxable gains.
Qualifying for primary residence exemption eliminates capital gains tax entirely if you meet the two-year ownership and occupancy requirements. This exemption can save hundreds of thousands of dollars on high-value Seoul properties.
Maximizing legitimate expense deductions requires meticulous record-keeping throughout your ownership period. Document all capital improvements, acquisition costs, and sale expenses with original receipts to increase your adjusted basis.
For non-residents, structuring ownership through appropriate entities or timing residency changes can affect which tax regime applies. Some investors benefit from establishing Korean tax residency before selling if their total tax liability would be lower under the resident system.
Installment sales or deferred closing strategies may spread gain recognition across multiple tax years, though these complex arrangements require careful legal structuring to comply with Korean tax law.
Conclusion
This article is for informational purposes only and should not be considered financial advice. Readers are advised to consult with a qualified professional before making any investment decisions. We do not assume any liability for actions taken based on the information provided.
South Korea's capital gains tax system rewards long-term property ownership through substantial deductions and exemptions, making it essential to understand these rules before selling.
Strategic planning around holding periods, residency status, and expense documentation can save property sellers significant amounts in taxes while ensuring full compliance with Korean tax regulations.
Sources
- Global Property Guide - South Korea Taxes and Costs
- Taxes for Expats - Korea Tax Guide
- Deloitte - Korea Tax Highlights 2025
- Chambers Practice Guides - South Korea Corporate Tax
- International Bar Association - Korea Real Estate Tax
- PwC Tax Summaries - South Korea Individual
- Korea National Tax Service - Capital Gains Tax Guide
- KPMG - South Korea Tax Information