Source: JLL

A major advantage of share deals is the potential savings on property acquisition tax. Asset deals trigger taxes on real estate transfers, which carry a tax rate of 4.6%. On the other hand, share deals avoid this by selling the shares of the property-owning entity rather than the property itself, allowing the assignee to avoid acquisition taxes for real estate. However, when the assignee acquires over 50% of the shares of a real estate holding corporation, it triggers controlling the shareholder status under tax law and requires a deemed acquisition tax payment on the underlying property. Nevertheless, this deemed acquisition tax rate for real estate is only 2.2%. The acquirer can avoid even this tax if they hold the real estate asset in a security trust, as the tax law does not consider them the substantial owner, exempting them from the deemed acquisition tax obligations. This exemption also enables more competitive pricing and reduces the amount of equity that needs to be invested at the time of purchase. The acquirer can therefore achieve a higher dividend yield, while providing greater transaction flexibility.

From the perspective of asset management companies, they can continue to hold and operate high-profile assets, thereby maintaining continuity in asset management. Furthermore, share deals allow them to simplify transaction procedures, such as applying for property registration records amendments, which enhances the success rate of deal closings.

However, the strategy does come with some drawbacks. Asset deals have relatively clear ownership structures as transfer is explicitly confirmed through the certified copy of the register. In contrast, share deals have some disadvantages concerning hidden liabilities and potential risks within the entity that holds the real estate. Therefore, comprehensive tax and legal due diligence become mandatory when acquiring assets via share deals. Furthermore, converting an asset previously transacted through a share deal back to an asset deal presents challenges. It would require paying acquisition taxes and going through complex and costly procedures, including dissolution of existing corporations or funds. This limits such assets to continuous share deal transactions only.

Figure 2: Asset deal vs. Share deal

Source: JLL

While a more prudent approach is necessary as potential liability issues may arise, share deals are expected to extend beyond the office sector based on their various advantages.