REITs 90% Rule (Korea vs US)

1. Conclusion

Yes, the rule is valid in both countries. The core principle is "Pass-through Taxation." If the company distributes more than 90% of its profits to shareholders, the government waives the corporate tax.

2. United States

• Legal Basis: Internal Revenue Code (IRC)
• The Rule: To qualify as a REIT, a company must distribute at least 90% of its taxable income to shareholders annually in the form of dividends.
• Benefit: The company creates a deduction for dividends paid, effectively avoiding corporate income tax. Most US REITs pay out 100% of their taxable income to eliminate any tax liability.

3. South Korea

• Legal Basis: Real Estate Investment Company Act (Article 28) & Corporate Tax Act (Article 51-2).
• The Rule:
  • Paper REITs (Trusted/CR-REITs): Must distribute more than 90% of distributable profits.
  • Self-Managed REITs: The mandatory ratio is lower (50%), but to receive the tax deduction benefit, they must distribute more than 90%.
• Benefit: Dividends paid are deducted from taxable income, resulting in virtually zero corporate tax.

4. Summary Table

Feature	United States	South Korea
Law	Internal Revenue Code	Real Estate Investment Company Act
Threshold	> 90% of Taxable Income	> 90% of Distributable Profit
Goal	Eliminate Double Taxation	Eliminate Double Taxation