Key Money (권리금) in Korea: What It Is, How It Is Priced, and How Not to Overpay
What you are paying for: three kinds of key money
In practice a single key money figure bundles three things. Facility key money (시설권리금) is the value of the interior, kitchen, equipment and furniture the seller leaves behind. Business key money (영업권리금) is the value of the going concern: regular customers, delivery-app reviews, brand, trained staff and supplier relationships. Location key money (바닥권리금) is the premium for the spot itself, a corner on a busy street for example, which exists even if the shop were empty.
Separating the three matters because each is checked differently. Facilities can be valued at what it would cost to buy them today, less wear. The business premium should be tied to verified profit. Location premium is the hardest to justify and is where most inflated asking prices hide. When a seller cannot explain which part of the price is which, that is itself a signal.
Key money is not the deposit, and it is not paid to the landlord
A Korean commercial lease has a deposit (보증금) that the landlord returns when you leave, and monthly rent (월세). Key money sits outside the lease entirely. You pay it to the current tenant under a separate key money contract (권리금 계약서), and when you leave you try to collect it from the next tenant. The landlord is not a party and does not guarantee it.
That is why a key money deal only works if the landlord agrees to sign a new lease with you. Buyers sometimes pay key money first and discover the landlord will not accept a new tenant, or will only do so at a much higher rent. Always make the key money contract conditional on the landlord signing the lease on agreed terms.
What the law protects, and what it does not
The Commercial Building Lease Protection Act (상가건물 임대차보호법) was amended in 2015 to recognize key money. Under Article 10-4, a landlord must not obstruct the tenant's recovery of key money from a new tenant during the period from six months before the lease ends until it ends, for example by refusing a reasonable new tenant without cause or by demanding an unusually high rent. A landlord who does so can be liable for damages.
The law does not set or cap the amount, does not register it, and does not make the landlord pay it. Protection is also weaker in some situations, such as large traditional markets or when the building is being redeveloped. For a buyer the practical lesson is simple: the law helps you recover key money later only if your own lease is sound, so the lease terms deserve as much attention as the key money price.
How the number is actually justified in Korea
Korean brokers and sellers usually talk about business key money as a number of months of net profit. For a small shop the range commonly discussed runs from a few months to roughly two years of monthly net profit, with higher multiples for businesses that run without the owner, have a long lease ahead and show stable sales across seasons. There is no official table. Gachiitda's own valuation band uses a months-of-profit approach with adjustments for lease, owner dependence, staff and customer concentration, and we publish the method.
The profit figure must be normalized before any multiple is applied. Add back a reasonable salary for the owner if the owner works in the shop, remove one-off income, and use the figures that can be proven with VAT returns (부가가치세 신고서) and card-sales statements rather than the figure the seller quotes from memory. Facility key money is then added at depreciated replacement cost, after confirming the equipment is owned outright and not on a rental or lease contract.
Taxes on key money
For the seller, key money for the business (goodwill) is treated as other income (기타소득). Sixty percent is deemed to be expenses, and the buyer withholds 22 percent of the remaining 40 percent, which works out to 8.8 percent of the amount paid. The buyer must withhold this at payment and file it with the tax office by the 10th of the following month. If the business is sold together with real estate, the goodwill may instead be taxed as capital gains, so check with a tax accountant.
For the buyer, the goodwill portion becomes an intangible asset (영업권) that can be amortized over five years. Value-added tax of 10 percent can also apply to key money and equipment unless the deal qualifies as a comprehensive business transfer (사업 포괄양도양수). Our separate guide on comprehensive transfer explains the conditions. Put the price allocation between facilities, goodwill and inventory in writing in the contract, because it decides how each side is taxed.
Checklist before you pay
Confirm the landlord will sign a new lease with you, in writing, on agreed terms, before key money changes hands. Ask for at least 12 months, preferably 24, of VAT returns and card-sales statements and compare them with the seller's claimed sales. Check whether equipment is owned, rented or on installment. Ask whether delivery-app accounts and reviews can be transferred to a new business registration. Read the lease for the remaining term, the renewal right and any redevelopment notice.
Finally, confirm that the seller will sign a non-compete clause. Under the Korean Commercial Act, a seller who transfers a business is barred from running the same business nearby for ten years unless the contract says otherwise, but spelling it out avoids argument. If the seller resists any of these checks, lower the price or walk away. A verified business is worth paying for. An unverified story is not.
FAQ
Is key money refundable?
No. It is paid to the previous tenant, not the landlord, and is only recovered if you later find a new tenant willing to pay it. The lease deposit is a separate, refundable amount.
Can I negotiate key money?
Yes, and you should. Ask the seller to break the figure into facilities, business and location, and request proof for each. Prices quoted to foreign buyers are often first offers.
Who pays the tax on key money?
The seller owes income tax on it, and the buyer withholds 8.8 percent at payment and remits it. The buyer may also have to pay 10 percent VAT unless the deal is a comprehensive business transfer.
Does every business have key money?
No. New shops in a fresh building, businesses in decline, and many corporate or online businesses have little or none. Key money is a feature of established retail and food businesses in good locations.
Thinking about buying a business in Korea?
Tell us your visa, budget and the kind of business you want. A licensed management consultant replies by email within one business day. The first consultation is free.
Get a free consultationThis guide is general information, not legal, tax or immigration advice. Korean laws, tax rates and immigration rules change; confirm the current rules with a Korean tax accountant, lawyer or licensed administrative agent before you sign or file anything.
More guides
- Visa First or Business First? The Right Order for Foreigners Buying a Business in Korea
The most expensive mistake foreign buyers make is signing for a business before the visa route is settled. Here is the order that works for each visa, and how to structure the contract so the visa is a condition, not a gamble.
- How to Buy a Café in Korea: Step by Step from NDA to Handover
A café is the most common first business for foreign buyers in Korea. This is the full sequence: budget, financial checks, the lease, the key money contract, permits and the handover, with the documents to ask for at each step.
- Comprehensive Business Transfer (포괄양도양수) and VAT: How Taxes Work When You Buy a Business in Korea
Whether 10 percent VAT applies to the purchase of a Korean business depends on how the deal is structured. This guide explains the comprehensive transfer exception, the withholding tax on key money, and what each side files.