South Korea Supreme Court Upholds Landlord Tax for Tenants' Unregistered Lodging

The Supreme Court of Korea has ruled in favor of upholding a tax assessment against a landlord who leased an officetel in Busan, after tenants were found to operate an unregistered lodging business. The decision confirms the appellate ruling against the landlord and reinforces that landlords can bear responsibility when they know tenants are running unregistered lodging.

In 2019, the landlord, referred to as A, bought an officetel in Suyeong District, Busan, and received an exemption from acquisition tax under the Local Tax Special Adaption Law. The exemption was granted because the property was acquired for rental purposes.

Subsequently, it emerged that the tenants had been operating lodging without registering the activity. In response, Busan’s Suyeong District Office imposed 18.84 million won in acquisition tax plus related charges, arguing that the property had been used for lodging rather than the permitted rental use under the exemption.

A challenged the district office’s decision. While the first-instance court sided with A, the second-instance court ruled that the acquisition tax and related charges were appropriate, setting the stage for dispute to reach the Supreme Court.

The Supreme Court’s 2nd Division ultimately confirmed the appellate court’s decision, finding no error in the lower court’s ruling. It held that A knew about the tenants’ unregistered lodging operation and thus bore responsibility as a rental business operator.

The ruling highlights how Korea’s tax regime can claw back acquisition tax exemptions if a property is used for lodging services in ways not aligned with the exemption, particularly when a landlord knowingly permits such use.

For context to international readers, officetels are a common mixed-use building format in Korea that combines office space with residential units and is often used for small businesses or investment properties. Tax exemptions on acquisition can apply in certain rental scenarios but may be reversed if the property is used for lodging in ways that violate regulations or conditions of the exemption.

Why this matters beyond Korea: The case illustrates the risk landscape for foreign and domestic investors in Korean real estate, underscoring the importance of due diligence on tenant activities and compliance with lodging registration and tax rules. It also signals that tax authorities may hold landlords accountable for how tenants use leased properties, potentially affecting investment returns and regulatory risk in Korea’s property market.