Transfer tax on Korean apartments when acquiring overseas (Australian) citizenship

Among permanent residents who have settled overseas, there are probably many who have left their real estate, including apartments, in Korea.
I have been living in Australia for over 10 years and acquired permanent residency 5 years ago. As the renewal of permanent residency is approaching, I am applying for RRV (I received an email asking me to apply for a Resident Return Visa or citizenship or both. Suddenly, this question arises.
'If I acquire foreign citizenship, what will happen to the tax when I sell my apartment in Korea later? Will it be different from now?'

In this article, I would like to clarify this question: how does acquiring foreign citizenship affect capital gains tax when selling real estate in Korea?

Many people think of it as a simple matter of changing nationality, but it is an important issue that can lead to a 'tax bomb'. Therefore, I will explain the core principles of tax law that you must know before planning to acquire citizenship or sell real estate. Please read the article carefully to the end and I hope it will help you make a wise asset plan.

1. Core Concepts: 'Resident' vs. 'Non-Resident', the Beginning of All Problems

• The most important criterion that creates tax differences is not ‘nationality (citizenship)’. Whether you are a ‘resident’ or a ‘non-resident’ under Korean tax lawno see.
• 👤 **Resident:** A person whose main residence is in Korea, such as having a Korean address or living in Korea for more than 183 days. A 'resident' pays taxes in Korea on all income earned in Korea as well as worldwide.
• ✈️ **Non-resident:** A person who is not a 'resident'. If your base of life (family, work, home, etc.) is in Australia, you are a 'non-resident' under Korean tax law. A 'non-resident' is Income generated only within Korea (e.g. income from the transfer of a Korean apartment)I only pay taxes in Korea.
• If you are an Australian permanent resident, you may be considered a 'resident' depending on the circumstances. If you become an Australian citizen and continue to reside in Australia, you will clearly be a ‘non-resident’ of Korea**. It is this change in status that makes the difference in tax benefits.

2. Korean Taxes: The Huge Benefits You Lose by Being a ‘Non-Resident’

• Most of the core benefits of the capital gains tax that were given to Korean 'residents' do not apply to 'non-residents'. This is the cause of the tax bomb.
• ❌ **Loss of tax exemption benefit for 1st generation 1 house:** This is an exceptional benefit where if a 'resident' owns/lives in 1 house for 2 years or more, capital gains of up to 1.2 billion won are exempt from tax. However, Non-residents are not eligible for this benefit in principle. So even if the house you own in Korea is your only home, If you sell as a non-resident, this benefit will be lost.
• ❌ **Reduction of long-term holding special deduction:** This is a system that reduces taxes significantly the longer you hold it. Non-residents can also receive this deduction, but the deduction rate may be much lower than that of residents due to not meeting residency requirements, etc. (Example: Residents up to 80% vs. non-residents up to 30%)
• As a result, even if an apartment is sold at the same price, the capital gains subject to taxation for non-residents will be much larger, so the capital gains tax to be paid in Korea may increase by tens of millions to hundreds of millions of won.
• National Tax Service of Korea: Non-resident transfer income tax guide

3. Australian Tax: Australian citizens are liable to pay tax on their worldwide income.

• It doesn't end there. Apart from tax issues in Korea, you now also need to look at your obligations as an Australian citizen. Citizens who live in Australia are also required to lodge tax returns with the Australian Taxation Office (ATO).
• 🌏 **Worldwide Income Tax:** Australian tax residents are: In addition to income generated within Australia, You must report all income earned worldwide to Australia, including capital gains from the sale of your Korean apartment.
• 🏠 **No Main Residence Exemption:** Australia also has a one-home exemption, but this only applies to the home you 'actually reside in'. If If your primary residence is in Australia, An apartment in Korea is not considered a 'house you actually live in' and therefore is considered an investment property and is not eligible for this benefit.
• in other words, Apart from paying taxes in Korea, You will also need to report this capital gain in Australia and pay tax under Australian tax laws.

4. Double Taxation Problems and Solutions (feat. Korea-Australia Tax Treaty)

“Then, do I have to pay taxes in both Korea and Australia?” You may be thinking, “Well, that’s not the case. That’s thanks to the **Korea-Australia Double Taxation Avoidance Agreement**.

• To put it very simply, it's like this.
  

  1. **Pay taxes first in Korea where the property is located** (primary taxation rights)
  2. When filing your tax return in Australia, prove that **"I have already paid tax in Korea on this income"**.
  3. Then the Australian Taxation Office, Taxes paid to the Korean government It deducts the amount of tax you pay in Australia (this is called the 'Foreign Income Tax Offset').

• For example, if the tax calculated under Australian tax law is $50,000 and the tax paid to Korea is $40,000, you only need to pay the difference of $10,000 more to Australia. If the tax paid to Korea is more, there is no additional tax to pay to Australia.
• Australian Taxation Office (ATO): Foreign Tax Credit Guide

5. Key Summary and Final Checklist

• Let me summarize.
  • If you become an Australian citizen, you become a **non-resident** for Korean tax purposes.
  • 'Non-residents' will not receive key benefits such as **one-household, one-home tax exemption** when selling Korean apartments, which will significantly increase the transfer tax in Korea.
  • At the same time, you must report your capital gains in accordance with **Australia's worldwide income reporting obligations**.
  • Although you will not pay taxes twice under the 'double taxation avoidance agreement', **you will ultimately pay taxes based on the higher rate of the two countries.**
• This is the most important advice. This issue is very variable, including the size of an individual's assets, the holding period, and changes in the laws of both countries. Therefore, **before making important decisions such as applying for citizenship or selling an apartment, you should definitely seek formal advice from an accountant/tax agent in both Korea and Australia.** It is wise to seek professional help to develop a tax-saving strategy.