[Korean Law Insights] Key Considerations for Depositing Korean Land Expropriation Compensation

[Published on September 27, 2023 edition of the "Korean Law Insights" column in the Korea Daily’s Economic Expert Section]

• Important to report and pay income and transfer taxes within 10 years

• Prepare related documents, bank accounts, overseas remittances, etc

One day, some Koreans may have received notifications stating that their ancestral land in Korea was expropriated and they need to engage in compensation negotiations, or that compensation funds have been deposited. Similar to the U.S., Korea has a system where the government, as the project executor for public works, can forcibly expropriate private land. This expropriation system can be seen as a type of involuntary transaction between the government and its citizens. The expropriation compensation, which is the equivalent of the sale price, is determined by an appraisal agency, and the government and the individual negotiate the compensation amount. If an agreement cannot be reached, or if the individual refuses to accept the compensation or fails to claim the payment, the compensation is deposited in the court with jurisdiction over the land's location.

Depositing the land expropriation compensation simply means that the buyer, in this case, the government, leaves the payment with the court, and the seller, the individual, can collect it. This deposit has the legal effect of completing the transaction as if the purchase price had been paid directly. In other words, even though the seller has not yet directly received the payment, the deposit creates the same effect as if the payment had been received. As a result, the government acquires ownership of the land, the individual transfers ownership to the government, and the individual becomes obligated to report and pay the capital gains tax on the compensation received.

The government sends a deposit notification to the individual when the expropriation compensation is deposited, providing guidance on how to receive the deposit and report and pay the capital gains tax. However, Koreans living in the U.S. often either never receive the notification or experience long delays in receiving it. Even when they do receive it, many find it difficult to fully understand the contents of the notice due to their limited knowledge of Korean laws and systems. Additionally, for various practical reasons, it may be difficult for them to visit Korea in person to handle this matter, or they may not have anyone in Korea to assist them.

There are two key things to remember when receiving the deposit notification. First, the compensation must be collected within 10 years. Second, the capital gains tax must be reported and paid within the deadline. If the compensation is not claimed within 10 years, it may be forfeited to the national treasury unless there are special circumstances. Therefore, it is advisable to receive the deposit in Korea as soon as possible with the help of those around you. More importantly, regardless of whether the deposit is received, the obligation to report and pay the capital gains tax still applies, and it must be done within 2 months of the reporting deadline. If the tax is not reported within the deadline, a 20% penalty is incurred, and if the capital gains tax is not paid, a daily penalty of 0.022% will apply.

Additionally, a practical point to consider is that when Koreans in the U.S. receive the expropriation compensation, they may need to prepare additional documents due to changes in nationality, name, or address. Especially when it is difficult for the individual to visit Korea in person and a proxy is designated to receive the compensation, the number of required documents increases. Moreover, opening a Korean bank account to receive the compensation and then transferring it from Korea to the U.S. could also pose practical challenges. Therefore, it is very important to make preparations and plans in advance regarding these matters.

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Jin Hee Lee/K-Law Consulting Korean Attorney

[Reference link in original Korean] 

https://news.koreadaily.com/2023/09/26/economy/economygeneral/20230926215945206.html