Land Trust

What is the PFV(Project Financing Vehicle)?

  • Project financing investment company that undertakes the specific business required of substantial time and fund, such as housing construction, SOC facility investment, resource disposition and others
  • Special-purpose company (SPC) and paper company
  • Possible for investment in goods

Comparison of general SPC and PFV

Classification SPC PFV
Law Applying Commercial Act The Commercial Act, Corporate Income Tax Act, Spectial Restriction Act on Taxation
Constituents 2~3 companies 2 or more of investors and 5% or more of investment by financial institution
Capital equity Minimum of 50 million won Minimum of 5,0 billion
Business scale Small-sized business Mid-to large business
Tax benefits Double taxation Exemption of income tax, income deduction, acquisition and registration taxes
Work Operated by SPC Asset management works: Consign an asset management company
Fund management works: Consign a company engaging in trust business

Strength(tax benefits)

  • Exemption of corporate income tax: When paying out the dividend for 90% or more of dividend profit, deduct the applicable amount from income
  • Reduction of acquisition and registration taxes by 50%
  • Exempt from 3 times of imposition of registration tax when establishing a corporation in the capital area

Why does PFV have the attention?

  • Easy to attract investment fund by taking care of the dual taxation through the reduction / exemption of the corporate income tax
  • Regardless of investment in major companies, it maintains the consolidated financial statements independently to improve the transparency

Business structure

Saengbo Real Estate Trust participates practically in the operation of the PFV development business investment financial institution (incorporator), asset manager and grantor of fund management work

PFV qualification

in order to be a PFV with income deduction, int has to be equipped with the qualifications as the law sets forth(Article 51-2(1)(vi) of the Corporate Income Tax Act)
  1. 1. Assets of the company are managed in certain business that requires substantial period and fund, and distribute the profit to shareholders
  2. 2. There in no branch office other than the head office, and there shall be no employees and full-time officer(Paper Company)
  3. 3. Temporanly establish the company with the existence period of two years or longer
  4. 4. Establish with the incorporation as a corporation under the Commerce Act and other legal provisions
  5. 5. Incorporator, director and auditor shall possess the responsibility and work undertaking capabilities
  6. 6. satisfy appropriate requirements for capital size, consignment of asset management works and fund management works, report of establishment and others

Requirements of incorporator and PFV establishment

PFV can be established by incorporation only, and the incorporation has to be participated by an institution with certain Qualifications.
Article 86-2 (4) and (5) of the Enforcement Decree of the Corporate Income Tax Act define the incorprators, size of capital, work consignment and others of PFV.
  1. 1. At least one or more of the incorporator has to be appropriate financial institution
  2. 2. If the incorporator is a financial institution, it shall invest the capital of 5% or more (if there are multiple financial institution, combine the total)
  3. 3. Capital of PFV has to be 5 billion won or more
  4. 4. Works on asset management, operation, and disposition are delegated to the party (asset management company) applicable to the followings
    • Legal entity that invested in PFV
    • Legal entity established by the PFV investor alone or jointly
  5. 5. Consign the fund management works to the financial institution (fund management consignment company) that engages the trust business under the Capital
    market Act
  6. 6. Report to the chief of tax office having the jurisdiction of tax payment by attaching the report of incorporation of business and required document within two months from the registration data of the incorporation

Financial institution application as a PFV incorporator

  • Any financial institution established with the permit under the Banking Act
  • IBK under the Small and Medium Business Banking Act
  • National Federation of Fisheries Cooperatives under the National Federation of Fisheries Cooperatives Act
  • Merchant financial company under the Insurance Business Act
  • Any insurance company under the Insurance Business Act
  • Korean Federation of Community Credit Cooperative under the Community Credit Cooperative Act
  • Korea Development Bank under th Korea Development Bank Act
  • Korea Expert and Import Bank under the Korea Expert and Import Bank
  • National Agriculture Cooperative Federation under the National Agricultural Cooperative Act
  • Investment sales business and investment brokerage business under the Capital Market Act
  • Korea Federation of Savings Banks and mutual savings banks under the Korea Federation of Saving Banks Act
  • Loan specialty financial company under the Loan Specialty Financial Business Act
  • Trust business company under the Capital Market Act

PFV related regulations

If PFV develops and operates, is the income deduction available?

PPFV has been introduced to the Corporate income Tax only some time ago that there is no clear standard on the businesses subject for income deduction yet, however, in the event that the unity of business plan under PFV is recognized, it is recognized as unified one even if the plan to construct several buildings within the plan is included.
However, in the event that the business plan includes the facility operation business of if the plan includes the engagement of tourism accommodation business barred from the delegated management, even if the applicable business requires substantial institution and funds, it is considered as generating the profit with the on-going business without expiring the business after certain period of time that it is not considered as a temporary business, in the opinion of tax authorities.
Therefore, if SPC plans to operate the facility operation business, it is difficult to satisfy the PFV requirement.