Numerous cases of real estate tax evasion have been uncovered, including instances where individuals transferred ownership of high-value apartments to friends or family members to qualify for tax exemptions on capital gains. Some individuals purchased luxury homes using funds received from parents or spouses without paying gift taxes, while others concealed business income to finance high-value apartment purchases.
The National Tax Service (NTS) announced on July 7 that it has recovered a total of 31.8 billion won ($23.5 million) in taxes from 104 individuals suspected of real estate tax evasion involving high-value properties. The total amount of tax evasion identified is estimated at 73.1 billion won ($55 million).
The NTS began simultaneous investigations on October 1 of last year, targeting individuals who acquired high-value properties in the Han River area, as well as foreign nationals and minors involved in suspicious real estate transactions. The investigations examined not only evasion of capital gains and gift taxes but also the sources of funds used for property acquisitions, including omitted business income and corporate fund misappropriation.
A common method identified was the 'fake sale' scheme. Property owners with multiple homes would falsely transfer low-value properties to relatives or friends before selling high-value homes, thereby claiming the one-home capital gains tax exemption.
For instance, an individual identified as A, who owned two homes, transferred a low-value apartment to a friend before selling a high-value apartment for approximately 2 billion won ($1.5 million), claiming the one-home tax exemption. However, investigations revealed that A continued to reside in the low-value apartment after the transfer and paid the buyer's acquisition and property taxes while also providing monthly payments. The NTS deemed this a mere formal transfer and denied the tax exemption, recovering 1 billion won ($750,000) in capital gains tax from A and reporting A's mother and the friend who lent their name to prosecutors for tax evasion.
In another case, a woman sold a single-family home and transferred her apartment to her husband's friend, falsely reporting the transaction as tax-exempt. Evidence also emerged that the buyer manipulated financial documentation to make it appear as though they had purchased the apartment. The NTS recovered 600 million won ($450,000) in capital gains tax and reported the involved parties to prosecutors.
In a separate case, a property owner transferred a multi-family housing building to a sibling before selling an apartment, falsely claiming the capital gains tax exemption. However, there were no records of financial transactions, and it was confirmed that the original owner continued to receive monthly rent after the transfer. The NTS recovered 400 million won ($300,000) in capital gains tax and issued a significant fine.
During the investigation into the sources of funds for acquiring high-value apartments, cases of omitted business income and corporate fund misappropriation were also revealed. An individual in their 50s, identified as B, acquired multiple properties, including a planned redevelopment apartment in Gangnam, with funds generated from a slush fund created by underreporting sales at a livestock wholesale business operated by their spouse. The NTS recovered 3.1 billion won ($2.3 million) in corporate and gift taxes.
Foreign-related tax evasion cases were also included in the investigation. A so-called 'black-haired foreigner' acquired two high-value homes in Mayongseong for speculative purposes without reporting funds received from a foreign spouse. The NTS recovered 400 million won ($300,000) in gift taxes.
There were also cases where individuals received support for high monthly rents from parents without paying gift taxes. An unemployed individual in their 40s lived in a high-value apartment along the Han River, paying over 7 million won ($5,250) in monthly rent while continuing to invest in stocks worth tens of billions of won and incurring high living expenses. Investigations confirmed that this individual received over 2 billion won ($1.5 million) from their parents for rent, stock investments, and living expenses, leading to a recovery of 1.3 billion won ($975,000) in gift taxes.
The NTS stated that in cases of tax evasion through fraudulent or other improper means, a 40% penalty for underreporting will be imposed. Six individuals confirmed to have committed tax evasion were reported to prosecutors, and four others received fines totaling 700 million won ($525,000).
The NTS has notified local governments to impose fines and criminal penalties on 20 individuals found to have violated the real estate registration law through name trusts and other means.
Looking ahead, the NTS plans to continue identifying tax evasion risks throughout the entire process of acquiring, holding, and transferring real estate. In particular, it will focus on verifying low valuations of gifted properties, payment of gift taxes, and low-value transfers among family members, especially in light of the potential increase in gift transactions following the reintroduction of higher tax rates for multiple homeowners.
An NTS official stated, “Preventing real estate tax evasion is the starting point for establishing tax justice and restoring stability and trust in the housing market. We will respond firmly to real estate tax evasion under the principle that evasion will always be detected.”
* This article has been translated by AI.
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