Recently, I was asked to consider signing a contract for real estate and belatedly purchasing it as a corporation.
In the end, the timing of the balance payment was so tight that it was not easy to acquire it as a corporation, so it did not proceed. In fact, it is not easy unless you consider the acquisition of the corporation and establish a corporation before the purchase.
Whether recommended by a bank or a brokerage house, there is a valid reason to acquire real estate in the name of a corporation.
Let’s look at some of the most common reasons for acquiring a business as a corporation.
bank loan
The most common case is a loan. In the case of the rental business, although lending has become more difficult and difficult than before, corporations still have an advantage over individuals when it comes to lending. In particular, it is difficult to get a loan for a newly established corporation in the beginning, but as time goes by and the corporation accumulates business history, and the corporation's performance is confirmed separately from the individual, it becomes relatively more advantageous. If you are running a business other than rental, this is the icing on the cake.
debt burden
The burden of bank debt is limited to corporations. This is one of the biggest differences between acquiring it as an individual and acquiring it as a corporation. If there is a problem with repaying a bank loan and the loan is collected in the future, if you acquire it as an individual, all other individually owned assets will also be affected. On the other hand, when a corporation acquires real estate in the name of the corporation, it does not affect other properties owned by the individual shareholder. Of course, this is assuming that other privately owned real estate is not provided as collateral due to lack of collateral.
tax
The tax that differs the most is income tax upon disposal. Individuals are subject to the transfer tax rate (up to 45%), but corporations are subject to corporate tax (mostly 19%). Compared to corporate tax, personal transfer tax is almost twice as high. Of course, taking into account benefits such as long-term holding deductions, the actual effective tax rate is approximately twice as different. However, when a corporation sells real estate, it is subject to corporate tax, so the tax on the profit is small, but it is cumbersome because there is a procedure to take money out of the corporation.
This is the reason why most people discourage it. It is said that money is tied up in a corporation. However, considering the nature of corporate cash remaining after the sale of real estate is reinvested in real estate if it has no other purpose, there are not many cases where the sale proceeds accumulated in the corporation need to be taken out. This is because there is virtually no reason to spend more than 1 billion won other than acquiring real estate. If the purpose is to acquire real estate, you can simply reacquire it from a corporation. In most cases, the idea that more taxes will be charged when money is taken out of a corporation is literally unfounded.
We looked into three major reasons for acquiring real estate as a corporation. If the purchase target is large, such as a building, it is better to do so as a corporation. Compared to the past, many of the advantages of acquiring it as an individual have disappeared. In particular, if you keep health insurance, etc. in mind, you will find the answer.
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