SOUTH KOREA Law and Practice Contributed by: Woong-kyu Cho, Ji-eun Kim and Hyun-kyung Kim, Barun Law LLC
Barun Law LLC 7, Teheran-ro 92-gil Gangnam-gu Seoul South Korea
Tel: +82 234 765 599 Fax: +82 234 765 995 Email: contact@barunlaw.com Web: barunlaw.com
1. Tax 1.1 Tax Regimes
of economic benefits. Accordingly, acquisitions below market value, transfers above market value, debt for- giveness, rent-free use of real estate, mergers, capital increases and reductions, in-kind contributions, stock conversions through convertible bonds or similar instruments, excessive dividends, stock listings, and interest-free loans may, in certain circumstances, be subject to gift tax. A grandparent may transfer property directly to a grandchild, bypassing the intermediate generation. To prevent avoidance of inheritance tax that would oth - erwise arise through two successive transfers, Korea imposes a generation-skipping surcharge. Where the heir or legatee is a lineal descendant other than the decedent’s child, an additional tax equal to 30% of the inheritance tax attributable to that property is imposed. The surcharge increases to 40% if the heir is both a minor and inherits property exceeding KRW2 billion. Trust taxation is generally governed by the substance- over-form principle under the Framework Act on National Taxes, while the attribution of trust income is determined under the Income Tax Act and the Cor - porate Income Tax Act. As a general rule, trust income is attributed to the beneficiary. However, where the settlor substantially controls the trust property and the statutory requirements are met, the income may instead be attributed to the settlor. The same principle generally applies for corporate income tax. Where the beneficiary is unidentified or absent, or the settlor sub - stantially controls the trust property, the settlor may be liable for corporate income tax. Certain trusts meeting the requirements of the Corporate Income Tax Act,
The Republic of Korea operates a comprehensive tax system centred on income tax, corporate income tax, inheritance tax and gift tax. Under the Income Tax Act, tax residents are subject to Korean income tax on their worldwide income, while non-residents are taxed only on Korean-source income. In addition, various national taxes (particularly capital gains tax) and local taxes may apply to the holding or transfer of assets, including real estate, shares, business assets, and goodwill transferred with a business. Among taxes relating to wealth succession, inherit - ance tax and gift tax are the most significant. Korea adopts an estate tax system under which the dece - dent’s estate is taxed at progressive rates. Inheritance tax is levied on the estate, whereas gift tax applies to property acquired by gift. Both taxes are subject to the same five-tier progressive rates, with a maximum rate of 50%: • 10% up to KRW100 million; • 20% over KRW100 million to KRW500 million; • 30% over KRW500 million to KRW1 billion; • 40% over KRW1 billion to KRW3 billion; and • 50% over KRW3 billion. Accordingly, inheritance and gift taxes are key con - siderations for high net worth individuals and family businesses in succession planning. Korea’s gift tax regime applies not only to direct transfers of property but also to gratuitous transfers
577 CHAMBERS.COM
Powered by FlippingBook